Line chart of % change since start of November showing Vaccine hopes trigger broad commodities rally

Vaccine optimism and hopes of an economic recovery next year have ignited sweeping gains in commodity prices, with rebounding energy markets leading the way higher.

The broad S&P GSCI index has rallied 14 per cent since the start of November, with the energy sector jumping 24 per cent, industrial metals up 14 per cent and agriculture 5 per cent. Gold, which had hit record peaks earlier in 2020, has been among the few outliers, falling 3 per cent as investors took profits on their exchange-traded-fund holdings.

Vaccine breakthroughs announced in November have led to a rethink among analysts and traders about the trajectory for the global economy next year, triggering bets on higher commodity prices, analysts said.

“Speculative flows are in the driving seat amid easy financial conditions,” said analysts at Morgan Stanley, adding that with economic recovery expected in 2021, “the peak for commodity prices is yet to come”.

Oil and other energy product prices plunged this spring as countries across the world locked down, people stopped driving and air travel came to a standstill. Global oil demand is forecast to have fallen an unprecedented 8.8 per cent in 2020, according to analysts at Commerzbank, even as it has recovered sharply in recent weeks.

Marine fuel and diesel have been among the biggest winners since the start of November, with low sulphur gasoil futures, a group that includes both commodities, jumping by almost a third as container ships returned to the seas and delivery trucks hit the roads.

Brent crude, which recovered the $50 a barrel mark last week for the first time since December, has risen 28 per cent.

Even the unloved commodity thermal coal has risen by a quarter. This has been led by tight supplies in the Chinese market where Australian low-grade material is now trading higher than Rmb700 a tonne for the first time since 2018. International prices have also jumped, helped by recovering Asian import demand and export infrastructure damage in Australia.

The mining industry is also getting a lift as industrial metals are flying higher. Iron ore has risen 25 per cent since the start of November to a seven-year high on Chinese demand. Worries about cyclones hitting Western Australia are also pushing the commodity higher. Copper is up 16 per cent to a seven-year high of $7,749 a tonne, while lead has also risen 16 per cent.

China has also supported the agricultural markets, with weather concerns caused by the La Nina weather phenomenon also adding to the upward pressure. Soyabeans are up 11 per cent, while cotton has added 7 per cent.

Analysts at Fitch Solutions expect oil to be among the outperforming commodities in 2021, with a mixed picture for industrial metals. While most metal prices are expected to grind higher, there is limited upside to iron ore after its strong performance this year, they say.