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The new coronavirus outbreak has hurt commodities prices

With the coronavirus crisis, the price of cocoa plummets, gold and copper suffer. These stock market crashes are also bad news for Africa, because a lot of families are dependent on selling cocoa in order to survive. So far, gold was considered a safe haven in times of uncertainty, and the recent decline in prices took investors by surprise. Other precious metals have also had a bad week.

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Many commodities saw their prices fall during the past week. The Covid-19 pandemic continues to worry the markets about its economic consequences, and the markets hate instability. This is bad news for Africa, a continent teeming with the precious wealth that allows families to survive.

The demand for cocoa is still strong

Cocoa has been battered in the markets this week, with investors questioning the imbalance generated by abundant supply in the face of slowing demand.

On the producer side, “the harvest is now almost complete for the main crop in West Africa and the results are very good,” Price Group analyst Jack Scoville said in a note. This region of the world is critical for cocoa as Côte d’Ivoire and Ghana together account for more than half of the world’s cocoa market.

“Demand is still strong, but less than before,” Scoville said, a situation that could undermine the prices of this product, which allows millions of small African producers to survive. They have already suffered a lot, especially since the two producing countries are not processing countries.

In London, a tonne of cocoa for delivery in December was worth $1,976 (£1,693), after hitting a low in almost seven months, compared to $2,020 (£1,743) the previous Friday. In New York, a tonne for delivery in May was worth $2,203 (£1,900), a level not seen since September, compared to $2,482 (£2,141) seven days earlier.

The recent gold plunge was unexpected

The recent decline in gold was “a huge surprise,” according to Joni Teves, an analyst for UBS, as the yellow metal is generally considered a safe haven in times of uncertainty. With equity and oil markets tumbling, investors may have been tempted to sell the yellow metal, which had reached a seven-year high ten days ago.

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Other precious metals also had a grey week, notably platinum, which fell on Monday, March 16th, to a level not seen since 2002. Palladium, on the other hand, reached on the same day its lowest level since December. And it had already lost nearly 30% last week.

On Wednesday, March 18th, silver fell to its lowest level since 2009 and copper to its lowest level since January 2016, despite signs of recovery in the Chinese economy. “The roller-coaster ride is not much compared to what’s happening on the commodity markets at the moment,” Briesemann summed up, stressing the fate of the red metal.

China’s economic recovery brings a ray of hope

On Monday, March 16th, China, the world’s largest importer of commodities, unveiled a series of gloomy indicators for January and February against the backdrop of the Covid-19 pandemic: industrial production contracted by 13.5% for the first time in nearly 30 years, according to the National Bureau of Statistics (NBS).

A glimmer of hope, the situation in China improved during the month of March. The powerful planning commission said on Tuesday, March 17th,  that more than 90% of activity has resumed outside Hubei province, the province most affected by the COVID-19.

Investor concerns are now focused on the United States, “the world’s second-largest importer of many metals” according to Commerzbank analyst, which “will experience a temporary interruption in demand”.

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(Featured image by dghchocolatier via Pixabay)

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First published in LeMonde, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Anne Kings is a reporter for the financial sector, often tackling Wall Street and shareholders' interests. She also covers the intersection of media and technology, and delves into interesting topics on entertainment. Sometimes she also writes about the cannabis industry, in particular CBD and hemp. She is currently based in New York.