COVID-19 is projected to bring most commodity prices down substantially in 2020, the World Bank said in its ‘April Commodity Markets Outlook’, released on Thursday.

Prices of energy and metals have been worst hit. While there has been only a moderate impact on the agricultural commodities outlook, supply chain disruptions and export restrictions and stockpiling by governments have raised food security concerns, it said.

The outlooks are “exceptionally uncertain” and depend on the severity and duration of the pandemic and when mitigation measures are unwound. Energy prices, which fell 18.4% quarter-on-quarter in 2020 Q1, are expected to average at 40% lower in 2020 than in 2019.

With crude benchmarks trading at below zero earlier this week, the bank projects oil prices to average at $35 per barrel in 2020.

This reflects a historically large expected drop in oil demand of 10%. This is unlikely to be mitigated by production cuts from OPEC and its partners, resulting in a surplus in 2020Q2 that “ will likely overwhelm storage capacity and cause widespread shutdowns of production among other producers, particularly in the U.S. and Canada,” the Bank says. As demand recovers, oil prices are also expected to recover in 2021, averaging at $ 42/bbl (compare to last October’s forecast of $58/bbl for 2020 and $59/bbl for 2021). The recovery is expected to be very gradual and to a lower level than before, as per the report. Non-energy prices are expected to fall 5% in 2020 and stabilise next year. Metal prices are expected to fall 13% and rebound modestly next year.

Agricultural prices are likely to stay broadly stable in 2020 because of relatively stable demand and all-time high levels of staple production and stock.

However, supply chain disruptions and trade policy announcements and stockpiling could create food shortages, the report said, highlighting a theme that has repeatedly emerged from the bank over the last few days..

“In addition to the devastating human toll, the economic impact of the pandemic will dampen demand and cause supply disruptions, negatively affecting developing countries that rely heavily on commodities,” World Bank economist, Ceyla Pazarbasioglu, said.

“Policymakers must resist the urge to impose trade restrictions and actions that put food security at risk, as the poor would be hit the hardest,” World Bank economist, Ceyla Pazarbasioglu, said.

Gold demand up

Gold prices were up 6.9% in the last quarter – its sixth consecutive quarterly rise. This was caused by safe-haven buying and historically low interest rates, the Bank said. Additionally, supply side disruptions due to the pandemic – such as suspension of mining in South America and South Africa helped support prices as did reduced or suspended refining operations. These factors and strong investor demand propped gold up despite weak jewelry demand in India and China, the report said.

COVID’s long-term impact on commodity markets

Importers and exporters of commodities are likely to see some long-term shifts in their markets due to the pandemic. These include increasing transport costs due to enhanced border checks, unwinding supply chains (companies might prefer to source from closer by for instance), substituting for imports with domestic goods as transport costs rise and changing consumer behaviour. For instance, people may choose to work remotely, travel less, and this could impact result in permanent drops in demand for oil, favourably impacting the current accounts for oil importers. The break in emissions caused by the restrictions may also increase public pressure for greener transport and lowered fossil fuel use.