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Confronting New Signs of Weakness

  • Oil: The oil market is confronting new signs of weakness, largely from COVID-19 and its impact on refinery demand for crude oil. Citi analysts project an increase in near-term crude oil inventories, with supply placing even more sustained pressure on prices. Demand growth, which has been falling, also sees a slow recovery ahead, with the potential for demand losses to escalate if the recovery period drags out further.


  • Gold: As COVID-19 impacts growth and risk sentiment, gold may continue to outperform. Gold jewelry demand fell 6.5% YoY in 2019 and could shrink further in 2020 on the growth shock in China. Yet, robust central bank demand for bullion as well as investor inflows could help moderate some of the physical market slack. Accommodative monetary policy and low currency volatility could help support financial gold buying interest. Citi analysts have upgraded their base case gold price outlook to $1,640/oz for 2020 and $1,925//oz for 2021.


  • Base Metals: Demand for copper has weakened, as key auto and home appliance manufacturing hubs such as Hubei, Zhejiang and Guangdong have been hit by the virus outbreak and visible stocks are expected to continue building over coming weeks. Similarly, the outbreak has weighed down on aluminium end-use demand and semi fabricators’ operation, resulting in a sizable inventory build.


  • Bulks: China’s domestic thermal coal market is expected to become more oversupplied. Chinese thermal coal prices have been on the rise in recent weeks with the outbreak resulting in weaker coal production than demand. However, this may reverse soon with the National Energy Agency urging domestic coal mines to resume production. Chinese power demand may remain weak due to a slowdown in power-intensive sectors.

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