Turbulence giving way to resilient growth

Saad Rahim, Chief Economist


From today’s vantage point, the fight against the COVID-19 pandemic appears to be advancing and the global economy on the road to recovery. This was far less clear when Trafigura’s fiscal year began in October 2020, when confirmation of vaccines that were both effective and that could be delivered rapidly and on a global scale was still some way off.

As such, a 70 percent recovery in oil prices (Brent); a 41 percent increase in copper prices to an all-time high; a 30 percent rise in aluminium prices; a 35 percent peak in nickel prices; and a 55 percent increase in iron ore, were all the more impressive given the conditions at the start of the fiscal year1. Impressive but not entirely unanticipated. As noted both in our 2020 Interim Report and again in the 2020 Annual Report, physical commodity markets were starting to see a multi-speed recovery emerging in different commodities and geographies, even before the end of our last fiscal year.

1All price changes calculated using Bloomberg as the data source, and calculating the percentage change from the closing price on 30 September 2020 to 31 March 2021.

Metals markets

Base metals markets were the first to rebound from the COVID-19-induced swoon, as a result of supply disruptions in Latin America and very strong demand. Manufacturing continued to operate at very high capacity around the world, even during the peak of the lockdowns as consumers went on a buying spree of vehicles, home appliances and technology. Additionally, stimulus measures from numerous governments helped boost construction and infrastructure.

What is perhaps most striking about the recovery in metals demand is that, for the first time in at least a decade, this is not just a China story. In fact, if anything, China’s demand has been a bit softer than anticipated. But this has more than been made up for by demand across the rest of the world, with manufacturing output and end-use demand in the US, Europe, Japan, Korea and many emerging markets recently reaching record highs. Copper in particular has been the standout performer due to supply disruptions, low inventories and higher demand, all of which we expect to continue to be structural features of the market going forward. This is particularly true due to copper’s integral role in the energy transition, exacerbated by future supply growth being constrained due to under-investment. Demand remains robust for aluminium, zinc, lead and nickel too, as the global recovery picks up steam and we see greater transition to light-weight transportation (aluminium), electric vehicles (nickel) and infrastructure spending (zinc).

Oil markets

Oil markets took a different path, which was to be expected, given that the COVID-19 pandemic brought significant restrictions on mobility of all kinds. By the start of our fiscal year, prices had more than doubled from their lows (and in the case of WTI, much more than that, given that prices briefly went negative in April 2020). Nonetheless, Brent was still only trading around USD40 per barrel in October 2020, a far cry from the near-USD70 pre-pandemic levels. However, announcements of vaccine breakthroughs and continued supply discipline from OPEC+ and other producers meant that the oil market started to heal, and prices subsequently rose to over USD70 by the end of March 2021. In the US, which remains the world’s largest oil market, inventories of the key transportation fuels, gasoline, diesel and jet, were already back at normal levels by mid-March, falling from nearly 500 million barrels at their peak back to their long-term average of 405 million barrels. Globally, strong manufacturing and trade activity supported diesel and petrochemical markets throughout 2020 and well into 2021, but gasoline and jet fuel demand lagged due to mobility restrictions, only to begin to pick up in the first quarter of 2020. As more countries have accelerated their vaccination programmes and lifted restrictions, demand has picked up accordingly, boosting volumes, flows and prices.


Looking ahead, the global economy is by no means fully out of the woods yet, with slower vaccine roll-outs in key emerging markets, especially India and Brazil, an ongoing source of concern. Globally, supply chain tightness all the way from upstream commodity production, through shipping availability, and into inventories of everything from autos to houses to semiconductors, mean that inflationary pressures are also starting to become a major concern for markets.

Beyond these pressures, the global economy looks set for generationally strong macroeconomic conditions, as ultra-accommodative monetary policy, unprecedented fiscal stimulus, pent-up demand, strong household balance sheets, and record savings all combine to paint a picture of a resilient and strong growth trajectory.