In April 2020, the World Bank published a Commodity Markets Outlook Report to analyze the impact of COVID-19 on the commodity market (April 2020 Commodity Markets Outlook-Implications of COVID -19 for Commodities). With the expansion of the COVID-19 pandemic, commodity prices have fallen sharply over the last three months, with the largest impact on the energy sector. Below is a summary of the report and blog (World Bank, April 23, 2020).

While the world is under pressure to respond to COVID-19, the price of crude oil recorded the largest decline in history, reflecting an unprecedented drop in demand due to mitigation measures. In addition, most metal prices have also declined, reflecting a collapse in the global industrial demand due to the pandemic, but so far it is less severe as compared to the global financial crisis.

The prices for agricultural commodities have not yet been as affected as oil and metal prices due to record harvests for some cereals and favorable weather conditions in key producing regions. Rice prices on the other hand, recorded an increase due to announcements of policy restrictions by some East Asian producers and weather-related production shortfalls. Overall, the global food market for major commodities remain amply supplied following the recent bumper harvests of maize and wheat, resulting in very high stock-to-use ratios by historical standards. However, recent announcements on policy regulations by major exporters and “excess” buying by some importers which could result in hording, have raised concerns about food security in the future. There is also concern that low-income countries are particularly vulnerable to disruption of the supply chain because food accounts for large portion of their consumption.

Due to the prospect of slowing economic growth, it is expected that product demand will decline for some time to come. The World Bank described the impact of COVID-19 on the commodity market as a “shock like no other” and the ultimate impact of the pandemic will depend on its severity and duration, and will have lasting implications. Changing consumer behavior could cause a structural shift in work patterns, reducing travel and demand for fuel, and the probable occurrence of an unwinding of complex global value chains, which could reduce commodity demand. 

References

​World Bank. The outlook for commodity markets, and the effects of coronavirus, in six charts.  April 23, 2020. 

World Bank Group. 2020. Commodity Markets Outlook, April 2020. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/33624 License: CC BY 3.0 IGO. 

Contributor: IIYAMA Miyuki (Research Strategy Office)