• Paul Smith and Tatiana Lyubimova

What does commodity trading look like in post-COVID World?

Updated: Apr 18, 2021

Commodities Traders Face Uncertain Times in a Post-COVID World

The coronavirus pandemic has sent shock waves around the financial world, drastically impacting the demand and supply of commodities. From shutdowns to supply chain interruptions, these effects may continue for months to come and may even lead to longer-lasting or even permanent changes.

Commodities related to the transportation sector have seen the most dramatic changes, particularly oil, which plunged due to lack of demand. Thanks to efforts by oil producers to cut down production, prices have stabilized at the present time. However, continued uncertainty remains due to some global resurgence of COVID-19 cases. Despite OPEC + expressing optimism for stronger demand at the end of 2020, crude prices have been stuck in the $40 to $43 per barrel range since early July and August. According to SPG Global, the outlook for crude may be downgraded if Congress is unable to deliver a second stimulus package and Europe continues to struggle with the virus outbreak. It goes without saying that traders will need to continue to monitor these aspects in the shorter term.

As far as how other commodities will fare in the post-virus outbreak, there are varying affects across the board. The demand for agricultural products, for example, will remain in demand since food is a basic necessity of life. Precious metals continue to see a robust recovery with surging gold prices as investors consider them safe havens. However, there lies some uncertainty in the near future with the Presidential election on the horizon as well as the possible development of a vaccine.

So what are some longer term effects on some commodities post-COVID? Much of this will be determined on the status of the global supply chains.

  • Increased Transport Costs Heightened border checks from COVID interfere with trade flows and increase transportation costs of commodities. With businesses dependent on global supply chains that have been disrupted, the relocation of production to their home countries may be encouraged. This would result in lower transport demand, leading to a permanently lower demand in oil.

  • Substitution Between Domestic and Imported Commodities With the return of production to home countries, some products may need to be substituted if replacements cannot be found. For example, domestically produced glass may be used, rather than relying on imported aluminum for food and/or drink packaging.

  • Agricultural Products Agricultural commodities are not immune to trade disruptions from COVID and could affect exports of perishable products, such as fruits and vegetables. Stockpiling of other commodities may affect trade and have a direct effect on global pricing.

In conclusion, there still remains much uncertainty in the global supply and demand chain as COVID continues to be a factor. However, many experts agree that economic activity will not return to pre-COVID levels until at least 2021. Until such time, traders should continue to keep a close eye on virus statistics and their effects on the global economy as well as the affected commodities.

Our team has over 30 years of combined experience in quant finance, machine learning, and futures trading. Contact us for more information on how our systems can forecast economic indicators to give you an edge in your commodity trading strategies.

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