Commodities: Outlook for 2021 | Calamatta Cuschieri

Markets summary

For most commodity markets, 2020 was undeniably a turbulent year.

The outbreak of the coronavirus pandemic triggered a widespread global shutdown of economic activity, negatively impacting demand and disrupting supply chains for commodities in virtually all sectors. Energy, industrial metals, and even precious metals — those mainly reliant on industrial applications and not to safeguard the invested capital, dragged significantly lower.

As from the second half of an unprecedented 2020, prices of several essential commodities rallied.


Crude oil - strongly depressed in the first half of 2020, consequent to a fall in demand due to the health crisis and breaking up of the OPEC+ agreement, registered substantial gains in the second half of the year. The re-opening of economies following a decline in coronavirus cases and steady developments on a coronavirus vaccine boosted hopes for a sustained recovery in economic activity and energy demand.

The single most important commodity in the world begun 2021, nearly how it ended – on a positive trajectory.

Brent Crude oil – a blended oil drilled from below the North Sea and typically refined into diesel fuel and gasoline, surged 8 per cent in January 2021, and by early February, reached the highest levels in over a year, offsetting the pronounced losses that transpired in the previous year.

The outlook for the said commodity in 2021 and onwards is seemingly benign, reflecting a stronger-than-expected demand recovery and supportive OPEC+ output policies. Fitch Ratings have recently increased its 2021 price forecasts to $58 per barrel (bbl) of oil for Brent and $55 per barrel (bbl) of oil for WTI, from $45/bbl and $42/bbl, respectively. Fitch also expects OPEC+ to continue actively managing supply, at least in the medium term.

Industrial Metals

Prices of industrial metals, triggered by wide-spread closures bringing activity to a stand-still, in the first half of 2020 witnessed significant declines. Although the impact initially proved to be persistent and possibly long-lasting, a rebound in metal demand, led by China, drove prices higher, while fears that misalignment of supply and demand which could have triggered an over-supply of inventories, eventually leading to further price drops, waned.

While other economies continued to flounder in the face of the coronavirus pandemic, China – a key player, quickly emerged from the coronavirus induced movement restrictions and proved to be the fastest to recover economically, providing firm support from a demand perspective.

Notably, following the steep decline in Q1 2020, metal demand in China - primarily driven by industrial production and construction, rebounded significantly. Unlike other base metals, the price of Iron Ore - the primary beneficiary from increased spending, particularly in infrastructure and construction, albeit remaining somewhat resilient, registered gains. Prices of other industrial metals followed suit, some of which had been severely impacted, also pushing higher from significant lows. The improved sentiment for metal demand was also particularly profound in the recovery of Copper prices - a barometer of the health of the global economy.

Except for a few, the rally in base metals, witnessed in the latter part of 2020, continued in 2021. While the rally on Nickel and Lead faded, the former due to oversupply concerns, the rally on industrial metals such as Lithium, Cobalt, Copper, and Rhodium persisted in hopes of a global economic recovery and a shift towards cleaner energy.

Consequent to robust demand stemming from the automotive industry - driven by government incentives to reduce CO2 emissions, and tight supplies, Lithium Carbonate, a critical ingredient in lithium-ion batteries for electric cars registered gains of over 80 per cent – the best performer on a year-to-date basis.

Expectations for the said category of commodities to-date remain benevolent. More robust demand on the back of an economic recovery, infrastructure spending, and a green-energy transition shall continue to dictate the path going forward, the latter also in the long-term.

Precious metals

Ensuing the downturn brought about by the coronavirus pandemic, investor demand for precious metals, those not solely reliant on industrial applications, significantly increased to safeguard the invested capital. The rally, particularly in Gold and Silver - the former surging to an all-time record high near $2,080/ounce and supported by unprecedented monetary stimulus and interest rate cuts by major central banks around the globe to cushion the economic impact posed by the pandemic, culminated towards the end of the year.

The outlook for the said precious metals in 2021 remain bleak. Although a few expect gold to continue breaking higher ground due to the central banks maintaining artificially low interest rates, many expect the gradual global economic recovery to weigh on the said precious metals. 

Palladium - the star performer within the commodities market for 2019 and up until end-February 2020, edged significantly lower at the peak of the pandemic, wiping-out gains realized in the preceding months.

The growing value of palladium witnessed in recent years is mainly attributed to an increase in demand due to most car manufacturers shunning platinum and preferring to use palladium in vehicle catalytic converters, designed to reduce harmful emissions for engines running on petroleum.

The outlook on palladium - the only precious metal in the green on a year-to-date basis, is indeed bullish. A recovery within the automotive sector along with the massive cut in Nornickel’s (the world's largest producer of palladium) production guidance may continue to prop-up palladium prices.


Disclaimer: This article was written by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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