Commodity Weekly: Corunavirus threatens demand Commodity Weekly: Corunavirus threatens demand Commodity Weekly: Corunavirus threatens demand

Commodity Weekly: Corunavirus threatens demand

Ole Hansen

Head of Commodity Strategy

Summary:  The outbreak of the coronavirus in the Chinese city of Wuhan added another layer of uncertainty to what has already been a volatile month. Commodities such as copper and crude oil, both exposed to Chinese demand, took a tumble. Both gave back most of the strong gains seen during December when the focus on a U.S.-China trade deal and OPEC+ production cuts boosted both markets

While global stocks, led by the U.S., continue to be bought by TINA or “There Is No Alternative”, the commodity sector has been anything but calm during the first weeks of 2020. So far, the sector has already experienced three major price moving events/developments. Middle East tensions were followed by optimism, then skepticism towards the actual impact of the U.S.-China trade deal. Finally, this past week the market has been dealing with the prospect of another China-born virus raising concerns about its impact on the global economy.

The outbreak of the coronavirus in the Chinese city of Wuhan brought back memories of the SARS outbreak in China in 2001. Before being contained, it had killed hundreds and hit the Asian economies hard as business and consumer demand plummeted. The timing could not have been any worse with the outbreak occurring days before the beginning of the Chinese New Year when hundreds of millions of workers travel home to visit their families. With several cities in lockdown and many events cancelled, the Chinese economy is likely to take an economic hit during the first quarter.

Commodities such as copper and crude oil, both exposed to Chinese demand, took a tumble. Both gave back most of the strong gains seen during December when the focus on a U.S.-China trade deal and OPEC+ production cuts boosted both markets. Copper’s weekly fall towards support $2.685/lb was the biggest since 2018 while crude oil continued its longest losing streak since last May.

Gold has settled into a range around last year’s high at $1555/oz. The virus threat and lower bond yields both helping to offset the headwinds from a stronger dollar. In our quarterly outlook out this week we wrote the following about gold: “After racing higher at the beginning of January, we may see the metal spend most of the first quarter consolidating above $1500/oz before moving higher to reach $1625/oz later in the year”.

HG copper headed for its biggest weekly loss since 2018 on growing concerns that the deadly virus spreading from China could negatively impact the fragile recovery seen across major economies in recent months. Copper has traded within an uptrend since October when China and the U.S. began raising the prospect of a trade deal. The deal, which hinges on a dramatic pickup in the Chinese buying of US energy and agriculture products, could now with the latest developments be thrown further into doubt.

From a technical perspective the next major level of support for HG copper is located at $2.685/lb followed by $2.64/lb.

Source: Saxo Bank

Crude oil began the week worrying about another potential big drop in supply - this time from Libya where worries over another Syria-type scenario have risen with outside powers supporting rival armed fractions. However, at a peace summit in Berlin, German Chancellor Merkel announced that countries with interests in Libya had agreed to provide no further military support while the ceasefire lasts.

In Tripoli the UN-recognized executive authority is backed by powerful militias and interest groups, mainly in the west of the country, as well as Turkey and Qatar. The east of the country is controlled by General Khalifa Haftar who heads the Libyan National Army and is supported by Egypt, the United Arab Emirates, Saudi Arabia, Jordan and at times, France and Russia.

The short-lived rally in crude oil at the beginning of the week was halted once the impact of the coronavirus emerged. Adding to the subsequent sell-off was the need from speculators to exit longs that had been accumulated during December’s strong rally. In Brent alone the build in speculative longs during this time amounted to almost a quarter of a billion barrels.

Selling accelerated once $64/b gave way but with geopolitical risks still a significant factor, we see the downside limited to $60/b. Whether we get that low depends on further news from China and whether speculators have reduced positions to a more comfortable exposure. Given the latest developments and crude oil’s inability to find support from geopolitical worries the OPEC+ group will be forced to extent production cuts beyond March. Until either demand picks up or non-OPEC production fails to deliver the expected barrels.

Source: Saxo Bank

Commodities have witnessed a volatile beginning to 2020 with geopolitical tensions, trade deal optimism to skepticism and more recently the corona virus outbreak creating both challenges and opportunities. In our latest webinar we take an in depth look at some of the major commodities and how the mentioned developments as well as climate and inflation focus may impact these in 2020.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.