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Key developments that could decide how commodities fare in 2021

Updated : January 12, 2021 02:31 PM IST

Commodities have had a great start and not just in terms of what they have done since October-November 2020 but how they are poised to do through the bulk of 2021.

There are expectations that this will be a solid sector through the course of this year.

CNBC-TV18’s Prashant Nair has put together the big themes at play and the key factors for the rally in commodities has to continue.

First, the US Democrats win in Georgia

With control of the Senate by a narrow margin, Goldman Sachs now expects Democrats to pass further fiscal stimulus in Q1 that they expect to total about $750 billion, this includes about $300 billion in stimulus checks. This basically means that all three major economies - the US, China and Europe will end up pursuing globally synchronized policies which means more stimulus globally.

Second, OPEC helps oil

This is directly related to oil prices. Saudi Arabia a week ago agreed to a unilateral production cut that is expected to neutralize the current lockdown risks, but more importantly set the stage for a tighter market as the vaccine roll-out accelerates later this year, economies open up, international travel picks up and demand for oil increases. So the production cut from Saudi Arabia may lead to more tighter supplies as those things materialize a quarter down the line.

Many global banks have increased their oil price forecasts on the back of this.

Third, sticky supply

This is a more fundamental reason because commodity prices must eventually reflect physical reality, prices must work harder to balance markets if there are other constraints to supply or demand, for example, the muted supply response from US shale producers even though oil prices are at $50 per bbl. A couple of months down the line there was a lot of talk that shale oil will come into the market and cap prices. It has not happened yet. Take the case of a halt to production Las Bambas, one of the largest copper mines which points to risk as far as supply disruption is concerned.

Watch accompanying video for more details
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