Delta variant taking centre stage

Concerns surrounding the spread of the Delta variant of COVID-19 were the main driver of prices this week, but the impact on prices was far from uniform. Not surprisingly, oil prices slumped as many countries in Asia, including China, tightened travel restrictions and most industrial metals prices also fell. By contrast, the prices of natural gas and coal continued to soar on constrained supply, and the prices of some agriculturals also ticked up amid supply concerns related to the possibility of virus-related labour shortages in producing countries. While we haven’t explicitly factored renewed lockdowns into the forecasts published in our latest Commodities Outlook, additional restrictions only provide further support to our view that the prices of most energy commodities and industrial metals will fall over the next year or so. The key data release over the next week will be the China trade data for July, which is due on Saturday. We expect total imports to have picked up as some supply bottlenecks eased, but a sharp fall in the construction PMI suggests that imports of many industrial commodities may have dropped back and preliminary data released this week showed a further fall in China’s crude oil imports. Elsewhere, the US bipartisan infrastructure package faces a crucial vote in the Senate over the weekend. While this could provide a boost to industrial commodity prices at the margin, developments in China are likely to have a much larger effect on prices over the coming years.