Coronavirus shakes the commodity market

Since the arrival of the Coronavirus, the markets have begun to become infected with uncertainty, fear and voltality, which has left little room that has not experienced its effects. Many companies are seeing their viability compromised. Some of them talk that they could be nationalized to avoid bankruptcies, and others related to raw materials are running no less luck.

Before the epidemic became a pandemic, and even before it even existed, the commodities market was already going through a somewhat unique moment. Above all, that of precious metals, and some key to the manufacture of products, such as palladium, used to make catalysts for cars, capacitors, and electronic devices. However, the tensions that could exist between the USA and China, had already raised the prices of the famous safe haven value and its "homogeneous", gold and silver. But where could we really be going?

Gold is consolidating, but does not back down in its climb

The last time gold was around $ 1.700 an ounce, it was at the end of 2012. Since then, the recovery of the markets and investor confidence continued to push it back to around the $ 1.000 per ounce at the end of 2015. Brexit, together with some structural problems in the euro area, and certain events that occurred in the coming years, caused it to reach an approximate value of $ 1.300 in the next few years.

On the other hand, the tensions of the two powers, USA and China, began to provoke a gradual escalation of its value. In 2019, gold broke that barrier and managed to rise about $ 200 an ounce, placing the precious metal around $ 1.500. And when it looked like a deal was going to be reached, and the markets "seemed" to start to calm down, the Coronavirus has pushed the ounce to above $ 1.700. Also, with high volatility, like many sectors. Well, this Tuesday we saw the ounce shortly after reaching $ 1.800, while this Friday it was trading almost $ 100 less.

Where does this take us? The 2008 crisis led gold to continue rising for the next few years. This does not mean that this idea should be extrapolated with the Coronavirus, since that crisis was of the financial system. However, this crisis is health, and has affected many sectors by imposing quarantines, confinements, and trade restrictions that affect different production chains. On the other hand, what is certain is that banks have started to "print" money, which once it is in circulation "should" increase the price of assets. Taking into account this case, that the Coronavirus crisis is far from over, and that governments are still thinking about how to resume activity little by little, a revaluation of the metal should be seen.

Oil sinks in price and is on the verge of collapse

If something has been well in the red, it is the oil sector. When oil production already reached records in August in Iraq, in an attempt to stop the fall in its prices Saudi Arabia and Russia reached an agreement a few days ago to stop the bleeding. Specifically, and after an emergency meeting with OPEC, they agreed cut its production by 20 million barrels per day. This agreement caused a record high in a single day for oil, where it even rose more than 40%.

However, the Coronavirus is accusing the low consumption of oil, and there is almost no storage space for it. Tanks, pipelines and underground caverns are reaching their limits. The International Energy Agency (IEA), published this week a report in which it communicates as many areas had reached their capacity limit. It is also observed how the effect of the pandemic has caused a 25% decrease in the demand for oil. Going from about 100 million barrels per day to 75 million.

If storage caps are widely reached, oil pumping should stop. That collapse could drive the price of a barrel to even lower levels that they would not have expected to see. And all this great concern has been transferred to the markets where we have seen a Brent Oil close at $ 28 per Barrel, and WTI Oil close at $ 18 This Friday, April 17.

All oil companies have been affected. Repsol, Royal Dutch Shell, Exxon Mobile, Total… If the market recovers, the pandemic is subsiding, and the cuts in its production take effect, it could be interesting to occupy positions. Although today there are still hard times ahead, and eventual falls in the prices of black gold and listed companies, it would not be strange to see them.

Commodities related to food staples

Not all have been falls in the market of raw materials. In the food products sector for example, One of the subjects that increased the most in March was "Orange Juice". One of the reasons was precisely because of Vitamin C, and is that the viral pandemic prompted its consumption when it was known of the multiple beneficial properties it contains for the body.

In a line similar to the consumption of Orange Juice we find Coffee. Coffee consumption has also been boosted as its consumption is more demanded as a result of the quarantine and the effects on people by the Coronavirus. In this case, its price increase was approximately 15%.

Flour and Wheat have also seen increased demand as essential products, raising their prices around 12 and 8% respectively. And although perhaps this is risky to say, the increase in the consumption of raw materials like these could be motivated by episodes of anxiety where several people are fed. However, this claim could be incorrect to some extent, as some others have been hit hard. An example could be found in Corn, where in the month of March it fell and fell by about 20%. Other examples of setbacks in basic products could be found in sugar, cocoa or wood.