The S&P GSCI, a widely recognized measure of broad commodities market beta, fell 8.4% in February. The global spread of coronavirus represents a simultaneous demand and supply shock, a situation that is close to unprecedented in global commodities markets. Across these markets, losses in February were driven by the petroleum complex and livestock, while even precious metals was not accretive to headline performance.
The S&P GSCI Petroleum was down 12.5% in February. The spread of coronavirus had a measurable impact on demand for petroleum products, and particularly so in China, where factories and transportation infrastructure in the worst-affected regions have been shut down for weeks. Oil prices tend to reflect current physical supply and demand conditions, which means that they are often the first to respond to slowdowns in global economic activity, particularly if they are caused by a demand shock. The International Energy Agency (IEA) cut its 2020 global oil demand estimates in mid-February. The IEA is now forecasting a 435,000 barrel per day drop in global oil demand year over year for Q1 2020; this would be the first quarterly drop in demand in more than 10 years. On the supply side, OPEC+ has yet to react to the virus-related slump in demand by making additional production cuts. After only two months, the S&P GSCI Brent Crude Oil was down 24% year to date.
Gold remains one of the only bright spots in the commodities complex, but even it came under some pressure at the end of February, with the S&P GSCI Gold falling 1.2% in February. Gold’s popularity among investors has risen over the past 12 months in response to heightened global geopolitical tensions and falling global interest rates. This popularity was buoyed even further by the spread of coronavirus, which has added a new layer of uncertainty and complexity to global financial markets. Gold can benefit during periods of financial ambiguity and when investors’ appetite for risk is tempered, because it is viewed as an excellent store of value and in many cases can be held outside of the traditional financial market ecosystem.
Relative to other commodities, the S&P GSCI Industrial Metals exhibited a muted decline of 1.2% for the month. Looking beneath the surface, there was more disparity. Most metals declined, but the S&P GSCI Zinc was down the most, declining 8.4% and catching up with the underperformance seen in January from the rest of the base metals. Zinc inventory levels hit a 20+ year low at the London Metal Exchange on Feb. 4, 2020, but supply then shot higher by over 50% a few days later, helping to exacerbate the move lower in price. On a positive note and after a double-digit down month in January, the S&P GSCI Copper showed some signs of life, up 1.4% in February.
The S&P GSCI Agriculture fell 2.9% in February. Losses were spread evenly across the grains and softs markets, with only coffee bucking the trend. The S&P GSCI Coffee ended the month up 6.4%, enjoying somewhat of a bounce that was driven by tighter supplies of washed, quality coffee and speculators starting to liquidate short positions.
Live cattle prices plunged in February, leaving the S&P GSCI Livestock down 6.1% for the month. The potential spread of coronavirus in the U.S. has especially negative implications for beef demand given that beef is the most important meat protein in the foodservice sector and is also the most expensive animal protein source.
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