Pakistan Commodities :Limited gains, continued pain of COVID-19 , (AKD Daily, Jun 16, 2020)
Pakistan Commodities: Limited gains, continued pain of COVID-19
- Global macros depict a weak picture leading up to May’20 where economic activity took a backseat to enacting unprecedented transport, healthcare and business activity lockdowns to curb the spread of COVID-19. May’20 was the month of limited re-openings in major developed economies pushing the TRJ index ~13%YoY higher, but still down 29%CYTD.
- Intermittent pain caused by severe global lockdowns (peaking in mid-April) are expected to impact global growth over the medium term, where questions over “second wave” and “infection peak” have fueled uncertainty over the shape of any recovery
- Energy commodity prices responded to Asian economies re-opening, allowing for increased demand expectations, showcased by rising Oil benchmarks (up 57-60%MoM, assisted by OPEC+ members complying with agreed cuts) and Coal (+13%MoM, but average price still down). Additionally, large spillovers for chemical feedstocks have caused significant distortions (PVC/Ethylene delta –24%MoM, PTA/PX margins flat Mom).
- Dislocated agriculture production, global food supply chains and radical shifts in consumer demand (following from historic employment shifts) have softened FAO food price index to 17 month lows, while Urea prices have also receded during May’20. Cotton prices underwent minor moves despite being burdened by weak fundamentals.
- Length and severity of global lockdowns, accompanied by consumption data are likely to dictate prices as major economies refrain from setting growth targets. Rise in energy prices are negative for Pakistan, with demand for exported agriculture products (including meat, fruits, vegetables, rice) having to find new markets due to global trade dislocations.
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