Global commodity markets have had a mixed start to the new year — optimism over an imminent rebound in economic growth mingled with fears engendered by the latest wave of the Covid-19 pandemic.

While the markets are caught between hope and fear, specific commodities are diverging. The interplay was visible in the first few days of trading, as .

Crude oil

Despite OPEC+ confirming its plan to produce an additional 400,000 barrels a day in February, Brent crude is trading above the psychological $80-a-barrel.

The decision should have exerted a downward pressure on prices, but market participants have other ideas, with many interpreting it as a signal for demand growth. Moreover, some countries are unable to meet the production quotas.

Crude oil, mustardseed down on futures

Without doubt the market is moving towards a surplus in 2022. The question is how long the demand optimism will last or will Omicron put paid to these hopes. The next meeting of OPEC+ on February 2 to discuss upcoming production plans should prove interesting.

Gold

The precious metal ended 2021 down by 3.5 per cent — the first yearly price slide in three years, caused mainly by large ETF outflows due to institutional investors.

In the new year, the yellow metal continues to struggle, unable to decisively breach the psychological $1,800-a-troy ounce level. Rising bond yields and dollar appreciation remain a headwind for gold. Unless investment demand picks up, the metal will continue to face challenges.

Gold futures weak but maintains above ₹48,000

Despite optimistic statements of demand growth in major consuming markets such as China and India, 2022 is likely to see tepid physical demand because of inflation, currency depreciation and lower purchasing power.

Base metals

The complex is caught between supply bottlenecks and demand concerns. Zinc has gained 2 per cent so far this week to touch $3,600 a tonne, while aluminium has moved up by one per cent to $2,840 a tonne.

Steel companies expect market to stay stable in 2022

High energy prices in Europe are forcing aluminium and zinc producers to announce production cuts. Concern over inadequate supply is lending buoyancy. LME warehouse stocks are also declining following a rise in cancelled warrants.

Despite the supply-side developments, demand concerns have not waned. Rising virus infections in the US and UK is sparking worries of renewed restrictions and even lockdowns. “The world cannot afford another global supply disruption,” a large industrialist cautioned.

Under the circumstances, business entities with exposure to physical commodities are most likely to watch the market for early signals and not take far-forward positions. At the same time, the conditions are ripe for those with risk appetite to take informed decisions for speculative trading.

(The writer is a policy commentator and commodities market specialist. Views are personal)

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