International commodity markets were dominated by the global COVID-19 pandemic throughout 2020. The lockdown measures imposed worldwide to combat the Corona virus have slowed economic activity and plunged the global economy into a deep recession.
The COVID-19 pandemic has caused a shock to commodity market and has affected most of the commodity prices. Unlike previous recessions, however, the extent and direction of price reactions varied by commodity group. While energy commodity prices fell sharply in course of the first lockdown in April and were still well below pre-crisis levels in December, prices for industrial metals fell comparatively moderately and rose well above pre-crisis levels by the end of the year. As both crude oil and industrial metal prices are closely linked to the global economy, these different reactions are rather unusual and could not be observed, for example, in the last global recession caused by the financial crisis in 2008/2009. Here, both prices for energy commodities and prices for industrial commodities recorded a sharp and persistent decline (see Figures 2 and 3).
The different developments in energy and industrial metals prices could be due to the fact that, unlike previous recessions, the global COVID-19 pandemic and associated lockdown measures delivered a unique combination of supply and demand shocks to commodity markets, which affected commodity segments differently. The shutdown of global industry in spring led to a sharp drop in crude oil demand. Moreover, the imposed curfews and border closures, first in China and then worldwide, reduced road and air traffic and thus demand for fuel. In contrast to the crude oil markets, the global lockdown not only reduced demand for industrial metals but also supply. In addition to the decline in demand caused by the slowdown in global industrial production, the strict lockdown measures in the producing countries led to temporary mine closures and thus to a shortage of supply.
Supported by government stimulus programs, the rapid recovery of the Chinese economy after the first lockdown led to a massive increase in demand on the markets for industrial metals. The fact that the Chinese economy, which demands the major part of industrial metals, has recovered much faster than the economies of other industrialized nations, supported the different developments of energy and industrial metals prices in 2020.
An expanded version of this article will be published under the title "Rohstoffpreise unter dem Einfluss von COVID-19" in Wirtschaftsdienst, 101, 2, February 2021.