Covid-19 pandemic not only sent the price of medical gloves to the sky, it has also resulted in the surge of almost all commodity price.
As we all know, price is the balance between supply and demand.
In the early stage of the pandemic, demand was expected to drop drastically as there was worldwide lockdown in which movement was restricted and economy came to a halt.
There was fear of unknown at that time and commodities were sold down panically.
However, China as the world's economy powerhouse, managed to contain the pandemic swiftly. Its economy activities rebounded strongly from Q2 of 2020 which resulted in the recovery of demand.
Furthermore, the pandemic has increased the demand of electronic devices, home appliances and furniture etc as many people started to work and study from home.
Low interest rate and various government stimulus packages across the world also encouraged spending on groceries, cars and real properties.
After a shock in early stage, demand slowly crawled back.
As mining, agricultural and manufacturing activities slowed down due to lockdowns, the supply of commodities dropped.
When the demand is higher than pre-Covid level and the supply is significantly lower, the mismatch between supply-demand widens and commodity price shoots up.
One of the most "famous" commodity is the crude oil. At one stage US WTI crude oil price fell to negative level in Apr20 in which sellers pay buyers to buy their oil.
Brent crude oil price fell to a low of USD20/Bbl in Apr20 but has since recovered steadily to pre-Covid level of USD60-70/Bbl, as shown in the 10-year price chart below.
Crude Palm Oil
The price surge of crude palm oil can be described in one word: unbelievable.
Decline in CPO production and expected higher demand from two of the world's largest CPO importer China & India play a part in the price rally.
High soybeans and corn price is no good news to poultry farming industry in Malaysia as both are used as chicken feeds and make up around 70% of the cost.
Thus, LHI, Lay Hong, Teo Seng, LTKM, PWF, CAB and QL will surely face increasing cost pressure.
Once an important commodity for Malaysia, rubber plantation is not that popular nowadays. Thailand, Indonesia and Vietnam are the 3 largest natural rubber producing countries now.
As we can see from the price chart, rubber price has increased more than 100% from its low in mid 2020. Current price of JPY250/Kg is higher than year 2018 & 2019.
Again, strong demand from China is cited as the main reason for the price increase.
There are a few listed companies with rubber plantation but I don't think the profit contribution will be of any significance.
The cost of manufacturing rubber gloves will be higher though.
Naphtha is a liquid petroleum derived from crude oil so its price tends to follow crude oil price. One of its many uses is as raw material of plastics.