As the world slowly recovers from the COVID-19 pandemic, it’s time to take a closer look at what’s happening in commodity markets. The next 12 months could be critical for producers and buyers alike, as shifting supply and demand dynamics continue to influence prices and affect market behavior.
Here are the biggest trends to watch out for in 2021:
1. China’s Recovery
Earlier this year, China was the first country to emerge from the pandemic-induced economic slowdown. It’s demand for commodities is now expected to surge, thanks to massive infrastructure projects and pent-up demand from consumers. This will likely drive up commodity prices, benefiting producers but challenging buyers, especially those in other emerging markets.
2. Export Restrictions
In 2020, several countries imposed export restrictions on critical commodities like food grains and minerals, sparking supply concerns globally. And while these measures were aimed at protecting domestic supply and ensuring fair prices domestically, they led to a significant shift in global commodity trade dynamics.
The use of export restrictions by countries and blocs like Russia, Ukraine and the European Union, aimed at safeguarding domestic food supplies, is a trend that is likely to continue in 2021.
3. Climate Action
Climate change will be another engine of change in commodity markets this year. Growing demand for renewables like solar panels and wind turbines is likely to drive up demand for materials like lithium and cobalt. Similarly, increasing regulations aimed at reducing carbon footprints are expected to drive demand for commodities like natural gas and copper, which are being used to produce cleaner energy.
At the same time, the pressure on commodities like coal and oil – which generate the most CO2 emissions – is likely to ramp up. Governments and large corporations are taking pledges to reduce their carbon footprints, which could cause many investors to think twice about holding stocks in these industries.
4. The Future of Oil
One of the most contentious areas in global commodity markets is oil. The demand for oil has decreased due to the COVID-19 pandemic and the surge in alternative energy. Oil prices are poised to shift as demand for this commodity recovers as vaccine rollouts and less restrictive lockdowns increase travel activity.
The Organization of Petroleum Exporting Countries (OPEC) is attempting to find a balance in the market by adjusting production levels. In most cases, prices for crude oil are expected to be volatile due to the ongoing supply and demand fluctuations that will persist as the pandemic continues.
5. Digitalization
Finally, digitalization is going to play an increasingly important role in commodity markets. Technology is being used to streamline the buying and selling of commodities, making it easier for producers and consumers to connect directly. AI-driven market analysis is being utilized to track trends and make predictions that affect commodities’ prices.
Overall, the future of commodity markets in 2021 is highly unpredictable, as the world continues to face the ongoing challenges posed by the pandemic. As factors such as increasing demand from China, export restrictions on critical commodities, the focus on climate action, the future of oil, and the increasing digitalization of commodity trading are changing the dynamics of these markets. It is important for producers, buyers, and stakeholders alike to remain informed and to embrace change to remain relevant. The year 2021 may be a turning point in global commodity trade, as the world reacts to shifting supply and demand trends.
