Volatile markets end 2020 strong with vaccines, stimulus in sight

By Naveen Thukral and Gavin Maguire

SINGAPORE (Reuters) -Global commodity markets ended 2020 on a strong note, with recovering demand and widespread stimulus packages buoying prices after a roller coaster ride caused by the global coronavirus pandemic.

Rollouts of vaccines to combat the virus and trillions of dollars' in fiscal support are expected to boost investment and spending in 2021, spurring demand for raw materials from oil to copper.

"It's been a tumultuous year for the commodity market, as the oil meltdown in March changed how we measure and gauge risk in the entire commodity sphere," Stephen Innes, chief global market strategist at brokerage Axi, told Reuters.

"But thanks to the Fed's unwavering support to dig the U.S. and global economy out of a hole," commodity markets have flourished, he added.

Dalian iron ore futures and silver are up around 50% in 2020, leading the gains in commodity futures.

ENERGY

Overall, spot Asian LNG led the energy complex, gaining more than 140% this year on booming demand and outages in key suppliers.

Global oil futures notched an annual decline of more than 20% but more than doubled from their decade lows hit in April, closing a historic year that marked the first-ever negative prices for U.S. crude benchmark WTI.

"The recovery from the pandemic will accelerate once a vaccine is widely available, further supported by ongoing fiscal and monetary stimulus from governments around the world," ANZ said in a note. "A strong global growth pulse will likely see the U.S. dollar weaken, which is normally a prerequisite for a rally in commodity markets."

Oil prices plunged in March and April when China and other countries went under lockdown to curb the spread of COVID-19, choking off global fuel demand.

Vaccine rollouts have raised hopes for stronger fuel demand in 2021, with Goldman Sachs forecasting Brent to hit $65 per barrel in the next 12 months. It closed Thursday at $51.80 per barrel in New York trading.

METALS

Dalian iron ore and Comex silver were the top performing major metals futures in 2020.

Iron ore prices surged, driven by a combination of booming demand in China and a drop in supplies from key producer Brazil.

In precious metals, Comex silver gained 47.9% and Comex gold 25% on the back of a rush of buying by investors seeking a store of value in a year of heavy government stimulus and global central bank spending.

In industrial metals, benchmark three-month copper on the London Metal Exchange rose 27% this year, becoming the sector's best performer.

More gains in copper and other base metals are expected in 2021 as the China-led economic revival expands to other regions.

"We will see an overall price surge across metals at least in the first half of the year (of 2021). Money is still trickling through the global economy," said commodities broker Anna Stablum of Marex Spectron.

AGRICULTURE

In agriculture, Dalian corn futures were the top performing market in 2020, followed by U.S. soymeal.

"I see the first half of the calendar year the best for grain markets," said Mike Zuzolo, president of Global Commodity Analytics, "and the second half of calendar year 2021 the best for livestock producers to get the best prices."

U.S. corn posted the strongest yearly gain since 2010 and soybeans gained the most since 2007, while wheat close up for a fourth straight year. Cattle and hogs finished down.

U.S. corn's gains caught many traders by surprise.

"It was an absolutely unprecedented rally, right into the teeth of harvest. I think that is what we will remember the most, how this market hit the contract lows there during the second week of August, then turning it on and never looking back," said Jeff French, analyst at Top Third Ag Marketing.

Soymeal, up 41%, and palm oil, up almost 18%, were other big gainers.

London cocoa dropped around 5% after rising for the last two years. Raw sugar ended the year up 15% and white sugar was up for a second year in a row.

(Reporting by Naveen Thukral and Gavin Maguire; additional reporting by Mai Nguyen in HANOI, Emily Chow in SHANGHAI, Florence Tan in SINGAPORE, Christopher Walljasper and Karl Plume in CHICAGO. Editing by Gerry Doyle and David Gregorio)