By Fiona Boal, Head of Commodities and Real Assets, S&P Dow Jones Indices.
Fiona Boal, Head of Commodities and Real Assets at S&P Dow Jones Indices.
The headline S&P GSCI fell 3.6% in October. Energy was responsible for the bulk of the declines in October, while agriculture continued to benefit from the return of demand from China as well as weather-related supply issues.
Across the energy complex, the rising number of COVID-19 infections, a second wave of lockdowns, and travel restrictions presented a serious threat to oil demand.
The S&P GSCI Petroleum fell 10.9% in October, reflecting the risk of a sizeable amount of demand destruction over the coming months. Global oil inventories have remained well above their five-year average, consumption has recovered more slowly than expected, and a resurgent COVID-19 pandemic threatens a double-dip recession. The OPEC+ group is scheduled to hold a policy meeting at the end of November and must decide whether to delay plans to ramp up output by 2 million barrels per day, starting in January 2021, in light of the poor demand picture.
The importance of China’s role in industrial metals was once again on display in October. In contrast to energy, the S&P GSCI Industrial Metals ended the month up 2.8%. According to many market participants, the old era of aluminum, characterized by seemingly immeasurable Chinese smelter capacity expansion, multi-year surpluses, and high inventories, may finally be coming to an end. The S&P GSCI Aluminum ended the month up 5.3%. Nickel also rallied; the S&P GSCI Nickel ended the month 4.3% higher, based on ore shortages and robust demand from China’s stainless-steel mills.
The performance across precious metals was lackluster in October, despite a clear decline in risk appetite among investors resulting from the long-term fiscal and monetary implications of the global pandemic and uncertainty over the outcome of the US presidential election. The S&P GSCI Gold ended the month down marginally but remained up 20.4% YTD.
The S&P GSCI Grains rose 4.3% on the month and its YTD performance turned positive. After a bearish situation surrounding prices over the summer, recent supply issues and a pickup in demand benefitted corn, soybeans, and wheat. Within the softs space, cotton and sugar rose during the month while coffee and cocoa fell. The S&P GSCI Cocoa moved the most, falling 9.9% on the month. A big drop in demand due to the pandemic left the world’s largest cocoa producer, Ivory Coast, struggling to sell 500,000 tons of cocoa beans from its interim harvest.
A recovery in demand from China continued to support hog prices in October; the S&P GSCI Lean Hogs was up 3.9% over the month. However, the cattle market struggled under the weight of heavy supplies, concern regarding demand from the US foodservice sector, and uncertainty surrounding consumers’ food purchasing behavior over the holiday period in light of the pandemic. The S&P GSCI Live Cattle was down 3.6% in October.
(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)