Economic effects due to the COVID-19 pandemic of suspending almost all activity have immediately impacted the world’s commodity markets and are likely to continue to affect them for months to come, the April edition of the World Bank’s Commodity Markets Outlook reports.
Those effects are direct, resulting from shutdowns to mitigate the spread of the virus and disruptions to supply chains, and also indirect, as the global response slows growth and leads to what is anticipated to be the deepest global recession in decades.
The full impact of the pandemic on commodity markets will depend on how severe it is, how long it lasts, and how countries and the world community choose to respond to it. The pandemic has the potential to lead to permanent changes in the demand and supply of commodities, and especially to the supply chains.
The effects have already been dramatic, particularly for commodities related to transportation. Oil prices have plunged since January, and prices reached an historic low in April with some benchmarks trading at negative levels.
Prices for natural rubber and platinum, both heavily used by the transportation industry, have also tumbled. Energy prices overall—which also include natural gas and coal—are expected to average 40 percent lower in 2020 than in 2019, although a sizeable rebound is anticipated next year. Natural gas prices have fallen substantially this year but coal prices have been less affected.
Gold prices, on the other hand, have risen as buyers have sought safety amid financial market turbulence.
Agriculture prices are less tied to economic growth and have undergone only minor declines over the first months of the year, with the exception of rubber which fell sharply, and of rice, which rose due to worsening crop conditions and some trade restrictions.
Overall global agricultural prices are expected to remain broadly stable in 2020 as production levels and stocks of most staple foods are at record highs.
Agricultural commodity production, especially next season, could be affected by disruptions to the trade and distribution of inputs such as fertilizer, pesticides, and labor.
Transport costs may be higher due to additional border-crossing requirements. Higher trade costs will in particular affect agriculture and food commodities and textiles.
Decisions to stockpile certain commodities could affect trade flows and have an effect on global prices.
Commodity-dependent emerging market and developing economies will be among the most vulnerable to the economic impacts of the pandemic.
The World Bank has joined other organizations in calling for collective action to keep food trade flowing between countries.
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