Weekly Commodities Review
Crude oil prices plunged last week as traders fretted that a global economic slowdown could dent energy demand, but gold hit a one-month high as many investors sought a safe-haven for their cash.
Elsewhere, wheat came off last week’s two-year highs reached following news that major exporter Russia had banned grain exports after a record drought ravaged crops.
Most financial markets were battered this week, triggered by a warning on Tuesday by the US Federal Reserve that the US recovery would be weaker than anticipated, forcing investors onto the defensive.
Slowing growth in China, the Asian powerhouse which has kept the global economy above water in the past 18 months, added to the damage.
The US and China are the world’s top two energy-consuming nations and are both major buyers of all raw materials.
“Oil prices retreated this week amid renewed concerns over the fragile global economic recovery as disappointing economic data from China and the US dampened ... risk appetite and prompted investors to lock in recent profits,” said Sucden analyst Myrto Sokou.
“It was a busy week with mixed sentiment as the Federal Reserve reported a cautious outlook for the US economy while the Chinese economic figures were fairly disappointing and weighed heavily on the commodity markets.
“However, Friday saw positive economic data from the US and eurozone, showing potential for a correction higher in commodity markets in the short-term.”
OIL: Prices dived under $76 as the market was slammed by growing pessimism over the economic outlook despite upbeat growth data in Europe.
“The ghosts of a global economic slowdown are back and haunting the oil market again,” Barclays Capital analyst Amrita Sen said in a note.
She added: “With sentiment having taken a significant turn for the worse, oil prices remain under considerable pressure, with even some extremely strong European figures failing to boost confidence.”
Data showed on Friday that the German economy grew 2.2% in the second quarter of 2010, the biggest quarterly expansion since re-unification in 1990.
In addition, economic growth across Europe’s core euro currency zone hit 1% in the second quarter.
“The choice of the oil market soundtrack has clearly become a bit extreme, clinging on to the events of the past and haunted by the mere notion of slowdown,” Sen said.
On Thursday, a surprise rise in the new US weekly jobless benefit claims added to increasing gloom over the economic outlook.
Meanwhile on Friday, the Organiszation of Oil Exporting Countries (Opec) revised upwards its world oil demand growth estimate for 2010 to 1.2%.
Opec warned however that slower economic growth in the second half of the year, caused by a phasing out of fiscal stimulus, would likely affect demand.
By late Friday on the New York Mercantile Exchange, Texas light sweet crude for delivery in September tumbled to $75.58 a barrel from 81.91 the previous week.
On London’s Intercontinental Exchange, Brent North Sea crude for September nose-dived to $75.28 compared with 81.30.
GRAINS AND SOYA: Wheat prices steadied after striking a two-year peak late last week when Russia decided to ban exports until the end of 2010.
“Wheat, corn and soybeans prices continue to enjoy a strong rally, supported by the continuing dry and hot weather in Russia and amid news from India and China that they will not dump their wheat inventories despite the recent price rally,” Sokou said.
“News that Russia has decided to continue the ban of its exports provided further support to the market.”
Wheat soared to $8.68 a bushel (about 25kg) on Friday, August 6, for the December contract – the highest level since August 2008.
“The drought in Russia and a grain export ban has kept wheat in the limelight with concerns that other exporter states in the former Soviet Union may follow suit”, said Barclays Capital analyst Sudakshina Unnikrishnan.
The commodity was also lifted this week after the US Department of Agriculture (USDA) forecast lower wheat and maize production for 2009/2010.
“Wheat prices once again gained markedly after the new estimates from USDA (were) published,” noted Commerzbank analysts.
“The forecast for the global wheat harvest in the crop year 2010/11 was (also) revised downwards – due to lower harvests in Russia, the EU, Ukraine and Kazakhstan.”
By Friday on the Chicago Board of Trade, wheat for delivery in December had eased to $7.48 a bushel from 7.55 the previous week.
Maize for December rose to $4.28 a bushel from 4.20.
November-dated soyabean meal – used in animal feed – increased to $10.42 from 10.33.
PRECIOUS METALS: Gold struck a one-month high at $1,217.65 per ounce, garnering support from its safe-haven status.
“Interest in gold remains robust, and particularly with macro concerns resurfacing, we would expect investment demand to remain supportive of prices over the forthcoming months,” Barclays Capital analysts said in a note.
By late Friday on the London Bullion Market, gold advanced to $1,214.25 an ounce from $1,207.75.
Silver eased to $18.06 an ounce from 18.30.
On the London Platinum and Palladium Market, platinum dipped to $1,527 an ounce from $1,571.
Palladium decreased to $473 an ounce from 491.
BASE METALS: Base or industrial metals mostly fell on concerns that demand will suffer in the months ahead.
Last week, tin surged above $20,000 a tonne for the first time since August 2008 – reaching a 23-month high of $20,900 – propelled by tight global supplies.
By late Friday on the London Metal Exchange, copper for delivery in three months fell to $7,227 a tonne from 7,421.
Three-month aluminium dipped to $2,144 a tonne from 2,215.
Three-month lead slid to $2,095 a tonne from 2,198.
Three-month tin firmed to $20,650 a tonne from 20,600.
Three-month zinc eased to $2,057 a tonne from 2,136.
Three-month nickel dropped to $21,500 a tonne from 22,140.
COFFEE: Coffee futures soared within a whisker of recent multi-year peaks, driven by keen demand from speculators.
By Friday on Liffe – London’s futures exchange – Robusta for delivery in November stood at $1,774 a tonne, up from 1,727 for the September contract last week.
On the New York Board of Trade (Nybot), Arabica for September rose to 177.35¢ a pound from 169.25¢.
COCOA: Cocoa prices lost ground. By Friday on Liffe, cocoa for delivery in December sank to £2,043 a tonne from £2,202 for the September contract the previous week.
On Nybot, the December cocoa contract dropped to $2,894 a tonne from 2,996 for the September contract.
SUGAR: Sugar futures moved higher. By Friday on Nybot, the price of unrefined sugar for delivery in October increased to 18.96¢ a pound from 18.33¢.
On Liffe, the price of a tonne of white sugar for October rose to £550.10 from £543.
RUBBER: Malaysian rubber prices drifted lower in subdued trade. The Malaysian Rubber Board’s benchmark SMR20 contract fell to 301.40¢ per kilo from 302.65¢.