Commodities: Brent oil prices to average $35.2 p/b for 2020

LAGOS (Capital Markets in Africa) – ICE Brent crude oil front-month prices closed at $19.3 barrel (p/b) on April 21, 2020, their lowest level since 2001. They constituted a decline of 24.4% from a day earlier and a drop of 30% from the previous week due to the contraction in oil demand and to the increase in global supply. The recent fall in Brent prices followed a plunge in the West Texas Intermediate (WTI) oil prices to negative territory for the first time in history, which closed at -$37.6 p/b on April 20. In fact, U.S. producers paid buyers to take oil barrels before the expiry of May’s futures contracts on that day, amid a lack of demand and concerns that inventories reached their full capacity. Also, global oil supply has remained robust, despite the OPEC and non-OPEC agreement to cut production, as complying by the new limits is technically complex and expensive. In parallel, Goldman Sachs considered that the OPEC and G20 agreement to cut oil production will be insufficient to balance the physical global oil markets, as it expected the 20 million barrels per day (b/d) cuts to translate into an effective voluntary cut of only 5 million b/d. As such, it expected prices to remain volatile and projected Brent oil prices to bottom at about $20 p/b in the second quarter of 2020, as storage capacity becomes saturated. However, it noted that the limited storage capacity will significantly put downward pressure on production, which would balance the market and create prospects for higher oil prices. Consequently, it expected oil prices to average $35.2 p/b in 2020.

Base Metals: Copper prices down by 9% in the first quarter of 2020
LME copper cash prices averaged $5,640 per metric ton in the first quarter of 2020, constituting a decrease of 4.4% from the fourth quarter of 2019 and a decline of 9.3% from the first quarter of last year. Prices averaged $6,036 per ton in January, $5,688 per ton in February, and $5,183 per ton in March 2020. The decrease in the metal’s prices was mainly due to the slowdown in global economic activity and in the demand for metals, notably from China, amid worldwide lockdowns to curb the coronavirus outbreak. However, copper prices recovered to $5,194 per ton on April 17, their highest level in four weeks, largely driven by supply disruptions amid shutdowns in mining countries, the reopen- ing of China, as well as by stimulus measures announced by global central banks. Further, copper prices steadied at $5,109 per ton on April 22, after consecutive declines in the past two days, as major miners warned that the coronavirus will reduce their output and as the turmoil in financial markets that was caused by the collapse in global oil prices eased. In parallel, Fitch Ratings revised downward its 2020 price projections for copper from $5,900 per ton to $5,700 per ton in March, then further to $5,300 in April, as it expected global demand for copper to decline by 6% this year. In addition, it anticipated the oversupply in the market to be significant, despite supply disruptions in major producers.

Precious Metals: Platinum prices to decline by 12.5% to $758 per ounce in 2020
Platinum prices averaged $746.4 per troy ounce so far in April 2020, down from an average of $759 an ounce in March 2020, $961 per ounce in February, and $987 an ounce in January 2020. They closed at $764 per ounce on April 22, 2020, down by 21.3% from the end-2019. Prices have been declining amid high volatility from the adverse impact of the coronavirus pandemic on demand for jewelry and automobiles. Platinum prices are projected to further decrease to an average of $600 per ounce in the second quarter of 2020, but to recover to $750 per ounce in the third quarter and $800 an ounce in the fourth quarter of 2020, in case the virus is contained in the near term. Overall, prices are forecast to drop by 12.5% to an average of $758 per ounce in 2020. In parallel, global platinum demand is expected to decline by 16.7% to 6.3 million ounces in 2020, mainly due to a 28% drop in jewelry consumption and a 17.4% decrease in automotive demand. Further, the global platinum supply is projected to contract by 15% to 7.2 million ounces in 2020, mainly due to a 17.3% drop in South African output. As such, the production surplus in the platinum market is anticipated to be nearly unchanged at 917,000 ounces in 2020.