Discussions concerning a Ok-shaped restoration from COVID-19 spotlight disparities throughout completely different commodity sectors. India appears to be experiencing its personal model of this, with some areas enhancing sooner and stronger than others. Decreased importation prices have served as a tailwind to assist India. Power accounts for about one-third of India’s whole imports, and as crude oil costs collapsed world wide from the simultaneous demand and provide shock, India discovered that the price of doing enterprise dropped considerably. Most commodity costs dipped within the first half of the yr, following strikes in different asset lessons. Exhibit 1 reveals the YTD and October 2020 efficiency of the 24 constituents within the S&P GSCI. Grouped by sector, the unfavourable YTD efficiency of the energy-related commodities clearly stands out; nonetheless, the opposite sectors appear to be rounding the flip.
Earlier than dissecting the present scenario, it is very important put India’s commerce relationships and main commodity exports and imports in a world context. With China’s dominance in world commerce, it could be intuitive to suppose it has an outsized buying and selling relationship with India, however China solely made up roughly 15 % of whole imports as of 2018. China is India’s largest buying and selling accomplice, however after that, imports are extra evenly distributed throughout many buying and selling companions. Probably the most outstanding vacation spot for Indian exports is the U.S. Roughly 20 % of exports to the U.S. encompass diamonds, jewellery, and treasured metals.
Crude petroleum and gasoline have historically made up 25 % of India’s imports. Crude petroleum imports fell dramatically from April 2020 by means of July 2020, because the Indian authorities enacted one of many world’s most stringent lockdowns in response to COVID-19. Whereas weaker international oil costs have been helpful, the pickup in demand has been gradual. Crude petroleum imports recovered notably in August however stay properly beneath earlier ranges. On a optimistic observe, gasoline demand hit a seven-month excessive in September.
Gold imports have additionally fallen sharply since March. In accordance with the World Gold Council, gold demand in India fell by 30 % throughout Q3 2020, in contrast with the identical interval final yr, because of COVID-19-related disruptions and surging gold costs. Whereas this was an enchancment from demand in Q2 2020, which was down 70 % year-over-year, it continues to replicate weak client sentiment, ongoing lockdown restrictions, and file gold costs.
From an export perspective, there could also be some indicators of enchancment, particularly for agricultural commodities. International demand for rice and sugar is anticipated to develop, and each are commodities which have seen elevated manufacturing in India in recent times. Bumper wheat crops over current years additionally put India in a robust place to benefit from surging international wheat costs.
When on the lookout for clues to the place an economic system could also be recovering or taking one other flip for the more severe, commodities are typically good indicators of what’s enhancing or deteriorating. The S&P GSCI offers market contributors with a great tool to reference when making an attempt to know commodity markets, simply because the S&P 500 is used to showcase U.S. fairness market efficiency.
(The Writer is Jim Wiederhold, Affiliate Director, Commodities and Actual Property, S&P Dow Jones Indices.)