Assistir: Five commodity themes for 2021

This year has been unlike any other in recent history. The coronavirus pandemic has left the commodities industry reeling, disrupting supply chains and slashing demand.

Performance has varied across the commodities sector, with some—such as metals and agriculture—experiencing effects that are likely to be short-lived when the economy begins to rebound. In others, the fallout of the pandemic could have more lasting implications, as the chaos of COVID-19 has exposed existing weaknesses or the need for structural change.

The power and transport industries have been hit particularly hard at a time when the decline in hydrocarbon demand is looming on the horizon, resulting in a pivotal moment for policy makers, trade flows and energy companies the world over.

While challenging, the current climate creates opportunities and two, intertwining developments—the ever-increasing focus on ESG and rapidly evolving technology—are key factors in driving change.

During this period, I have been asked countless times "What impact will the pandemic have on the energy transition?" and "What might the commodities industry look like in the future?"

The answers, of course, are not simple, particularly when one considers the implications of ESG, which we at S&P Global see across each of our divisions. But here is my view through five commodity themes to watch as we move into 2021.

1. 1. The path of energy transition

The coronavirus pandemic has not only altered near-term energy supply, demand, and prices, but also, to some extent, their long-term trajectories.

There is debate as to whether coronavirus will accelerate the energy transition. S&P Global Platts Analytics believes that, while coronavirus has reduced long-term global oil demand by 2.5 million b/d, this is not enough to substantively bring forward the year of peak oil demand that we project for the late 2030s.

In addition, while the pandemic is forecast to cut energy sector CO2 emissions by 27.5 gigatons over 2020-2050—equivalent to almost one full year of emissions—more than 10 times this reduction is needed to meet a scenario in which global warming is limited to 2 degrees through 2050.

In short, for both long-term global oil demand and supply, the impact of coronavirus is a decided step down, but not a step change.

Looking out to 2050, and as global demand for energy continues to grow, there will be an extensive focus on renewable/clean energy, but fossil fuels will continue to provide most of the energy supply. However, there is an expectation that green recovery plans, launched by national governments seeking to pivot toward decarbonization and sustainability as they emerge from the crisis, could change the state of play.

2. 2. Reducing and valuing carbon

Existing markets and technologies alone will not be enough to reach net-zero targets in the coming decades. Cross-sectoral pathways to climate neutrality will have to include energy efficiency, electrification, sustainable hydrogen, advanced biofuels and carbon capture.

Under the Paris Agreement, more countries will have to adopt carbon targets, forcing out CO2-intensive processes and encouraging sustainability. This creates the need for a global carbon price to understand the broader picture.

Unlike other technological leaps necessary for new markets to evolve, carbon pricing is a proven means of incentivizing lower-carbon solutions. While power generation has been the main arena for carbon pricing so far, looking ahead, we must consider that coal use will begin to shrink after 2021. Therefore, we need to identify whether transportation, industrial and agricultural processes could become the marginal generator of carbon reductions.

Hydrogen could play a key role due to the abundance of supply sources and its wide-ranging applicability. The vast potential for global renewables can be harnessed via electrolysis to produce this zero-carbon energy carrier, for injection into gas grids, for fuel cells, and for applications from power generation to industrial and domestic heat.

Establishing hydrogen supply lines will be critical in 2021, with projects testing different modes of transportation by vessel, truck or pipeline. For these markets to scale, we will need policy drivers from governments to bring down costs. Similar advances will be needed in carbon capture and storage technology used in the manufacturing of so-called "blue hydrogen", which unlike "green hydrogen" is produced from fossil fuels like natural gas. This makes up the bulk of existing supply and will likely provide a pathway for those early adopter companies.

Europe is a leading proponent, with an ambitious hydrogen strategy, supporting projects and driving development of regulation as it seeks to establish 6 GW of electrolysis capacity by 2024. Meanwhile, the fourth phase of the EU emissions trading system will tighten the supply of allowances in 2021, supporting carbon prices and potentially narrowing the price gap between conventional and renewable hydrogen.

3. 3. Commodities supercycle 2.0

Many of these clean energy technologies require substantial investments over the next few years. Central banks are setting ultra-low interest rates as an important part of monetary policy towards recovery. This may help those clean energy technologies to find their first investments, while we see that companies putting into practice ESG standards are compensated by their investors.

The makings of the next commodity supercycle are perhaps falling into place in 2021 and beyond, but with many caveats, which makes this cycle somewhat different to those seen after previous price falls. Oil demand is relatively price inelastic and much more responsive to shifts in trend regarding income—and by extension—fiscal stimulus, tax incentives and other economic drivers.

As such, the pace of economic recovery remains critical. The global economy has been recovering from its lowest point in April 2020, but it is not likely to reach 2019 levels before the third quarter of 2021. In addition, we forecast global GDP will contract by 3.8% this year, compared with a 0.1% contraction during the 2009 global financial crisis, creating further headwinds.

There are some bullish undertones to watch out for, however, with a weaker US dollar and a possible coronavirus vaccine providing some support in the short term, while so-called green recovery funds unveiled by the EU (€225 billion dedicated to the energy transition over the next three years in July), the US (a $2 trillion energy transition plan under the Biden administration), and China (further details are expected in the 14th Five Year Plan in Q1 2021) provide some long-term buoyancy.

Interestingly, the Chinese government has a new twist to its traditional five-year infrastructurebased stimulus package, with the focus on 5G, data centers, AI, the industrial internet and EV charging infrastructure. This will accelerate the construction of the data and communications networks needed to support smart manufacturing and smart cities, with internet-enabled transport and energy networks. This aims to shore up the economy, which S&P Global economists forecast has dipped 3.8% in 2020 and will grow by only 1.5% in 2021 compared with 2019.

4. 4. Innovative disruption: 5G and AI

Disruptive technologies will play an increasingly transformative role in the coming years, particularly in the context of the energy transition. As 5G, AI, big data, blockchain, smart metering and the Internet of Things become ubiquitous, they have huge potential to change how and when energy is generated, how trading occurs and how data is ingested and acted upon.

This year S&P Global Platts partnered with Blocklab, the Port of Rotterdam's blockchain subsidiary, to launch Distro Energy. This is a high-frequency, decentralized energy market that uses AI and blockchain's distributed ledger technology to enable energy consumers in the port to manage their power consumption by trading renewable energy from solar and battery storage.

In the two months after launch, consumers reduced their costs by 11%, while the renewable producers saw a 14% improvement in their revenues. While this is a small pilot scheme, it has exciting potential to be rolled out more extensively.

Increasingly, we see demand for real-time data analysis to optimize production and reduce costs among industry participants. But in order to be truly transformative, these technologies need to function not only along individual energy value chains—from production through to distribution and consumption—but also across them, where the oil, gas, coal and electricity energy systems interface and interconnect.

5. 5. The future of unilateralism

Global lockdowns have provided a further accelerator for "deglobalization", as business and governments attempt to "reshore" global supply chains where possible, reducing dependencies on imports and exports, and focusing on domestic markets.

Food security is expected to be a key theme for 2021 as a result, with exporters that have already curbed outgoing supplies in 2020 still looking to meet domestic demand and maintain internal price stability. Experts believe that, while there is no shortage of food and grain supplies, several factors have created unease among buyers. This was highlighted by stockpiling of grain reserves in 2020 by state buyers in China, the Middle East, Turkey, Southeast Asia and Africa: at times some were forced to sell imported grains at a loss in domestic markets to limit food price rises.

The return of China as a major force in the global corn and soybean markets may add a further bullish factor to sentiment, as the restocking of the hog population affected by the 2018 swine flu outbreak could increase the country's corn import quota threefold from 2020's 7 million mt.

Agencies such as the Food and Agriculture Organization of the United Nations have predicted that rising prices, coupled with economic turbulence, leave lowincome countries in a precarious position, further undermining food security.