Increasing Volatility in the Commodity Markets
Throughout 2020, commodities have shown to be highly volatile. This is illustrated by the overall Kairos commodity index, which since February has decreased with 5.8%. This is the largest decrease recorded in a single month over the last three years. This comes on the back of all the commodity groups having decreased since the end of 2019. While energy was the best performing index from 2017 to 2019, the most drastic fall in 2020 is to be found in this sector. From the end of 2019 to this date, the index has dropped with 34.9% and since February it has decreased by 16.9%. Declines of this magnitude are rarely seen, and this is the largest monthly fall in the energy index since December 2014. This crash is heavily driven by the recent movements in the oil prices given that Brent Crude Oil, WTI Crude Oil and RBOB Gasoline together constitute 50% of the index, and these are all down with approximately 30% in March.
The declines in the different commodity groups in 2020 span from 1.0% to 34.9% and not a single index has shown an increase in March. Relative to the past three years, as the only two commodity indices, the animal products and grains & oilseeds indices have increased slightly. Nonetheless, along with the Energy index, these commodity groups have collectively fallen the most in 2020.
There are still two weeks left in March where the market may or may not recover, however, due to the high volatility the monthly decline can also become even more extreme. The recent large decreases across the different commodity groups are illustrated in the figure below. Further information and longer price history for specific indices can be found in the market watch section for the given commodity groups.
On the Corona virus we recommend reading...
The start of the new decade has been fraught with worries about the infamous COVID-19 and now the big question revolves around the extent to which national authorities can contain it. The corona virus has disrupted our societies and businesses, and supply chain professionals now remark that this is the biggest risk to their companies’ operations. The corona virus has fostered general insecurity, which in turn has resulted in higher volatility in the financial as well as the commodity markets. In order to understand what is happening and to stay abreast, we suggest our readers read the following two articles to prepare for different scenarios in the coming future:
> This Harvard Business Review article pinpoints the effects the virus has already had on the operations of manufacturing companies
> This medical scholarly article delves into the different prospects to containing the virus
The corona virus has served as a wakeup call for the supply chain industry to always prepare for sudden disruptions. We are therefore hosting a webinar on the perspectives of the corona virus’ impact on the macroeconomy and on the different commodity groups, and give our take on how companies can prepare for different scenarios.