Co-written with Jan Schwalbe, Editor-in-Chief, Finanz und Wirtschaft
2020 has been a year of unusual shocks for the commodity traders, forcing them to embark on a frightening roller-coaster. At first, the Covid-19 pandemic hit them hard. Health restrictions around the globe triggered a sharp recession in most countries, advanced or developed ones. Highly correlated to global activity, commodities like oil and metals saw their prices fall accordingly. At the same time, the pandemic created production shortfalls on some soft commodity markets, edible oils for instance, pushing some food prices up.
However, unlike previous global recessions which had long lasting effects, most commodity markets swiftly recovered from the price shock. The combination of supply cuts by OPEC+ and a faster-than-expected rebound of the Chinese economy have sent most commodity prices up again, many of them reaching their pre-pandemic level.
External shocks were not the only ones to affect the commodity traders. Last year was also the year of fraud cases. They mainly took place in Southeast Asia and the Middle East, but Switzerland was not isolated. Swiss banks specialised in trade finance suffered at least half a billion Swiss francs of losses. As a result, some players left the business. Nevertheless, 2020 should also be remembered for some positive developments. In particular, Swiss people voted against the Responsible Business Initiative and instead favoured a so-called “counter-proposal” designed by the government who took account of the international competitiveness of the Swiss commodity hub. These future legal provisions will help the commodity industry move forward and become more sustainable. The vote was a sign of trust, not only in the industry, but also beyond and emphasised the important role that multinationals play in the local economy.
What’s to expect in 2021? The industry is back to fundamentals as this special issue reports. And it is not just about providing the global economy with the key ingredients it needs. The industry is also starting a new cycle for at least two reasons.
One. The world is entering a post - health crisis growth as the pandemic is more or less under control. Vaccines will also boost the global economy and help it recover. That will benefit the commodity industry because it is at the core of the production activity.
Two. Many countries take the pandemic as an opportunity to make their economy greener. Commodity traders will play a key role when it comes to building infrastructure and electric vehicles, or achieve the targets set by the Paris agreement on climate change. Let’s not forget there is also the need to feed the world in a more sustainable way.
Combined, those two reasons may well lead to a new “super cycle”, which is a secular trend pushing commodity prices up beyond the recent rebound. This would happen because the increase in demand is only slowly met by a lagging supply. Four such super cycles have happened since 1900. The first two occurred after World War One and Two, with the reconstructions. The third one took place during the oil price shock of the seventies. The last one came with the rapid industrialisation of China in the early 2000s. In that potential new super cycle, oil prices may well reach USD 100 a barrel, experts say, before plateauing as the world will switch to alternative, less CO2-intensive energy sources. All this means that there are plenty of opportunities ahead for the Swiss commodity hub.
One last transformation would still be needed though. Gender inequality remains an issue, but there might be light at the end of the tunnel. Some companies start to appoint women to top positions. They could in turn become role models and inspire other women to consider a career in the commodity world.
