AfkInsider Commodities Report: Copper, Gold Rally; Oil Surges Then Retreats

AfkInsider Commodities Report: Copper, Gold Rally; Oil Surges Then Retreats

Several commodities including copper, gold and oil were boosted this week following comments July 10 by Federal Reserve Chairman Ben Bernanke that the reserve’s accommodative monetary policy would be needed for the foreseeable future.

His remarks put pay to fresh expectations late last week that there soon would be a scaling back of the Federal Reserve’s bond-buying program.

Copper rallied strongly in the wake of Bernanke’s comments, with the three-month price on the London Metal Exchange (LME) breaking through $7,000 per tonne July 4 to trade at $7,049.25 a tonne in late-day trading, its highest in nearly a month. The red metal on July 5 had finished at $6,841 a tonne based on the three-month LME price, having shed most of the week’s gains. The loss followed a sell-off triggered by the U.S. dollar’s climb to a three-year high on the back of strong U.S. economic data. Bernanke’s comments this week that a further improvement in the country’s labor market would be needed before the pace of bond purchases could be reduced saw the dollar go into retreat.

Strong import data from China, which accounts for about 40 percent of global copper demand, also helped boost the red metal. Chinese imports of copper, copper alloy and finished products rose 9.7 percent in June compared with the same prior-year month, the country’s customs agency said July 11. Analysts believe the strong increase in China’s copper imports were due to the recent gap between copper prices on the LME and those on the Shanghai Futures Exchange, and were only a temporary blip. China’s copper imports in the first six months of 2013 were 20 percent lower than the same period in 2012, reflecting generally weak demand in the country, among other factors.

Gold started moving up within minutes of the Federal Reserve chairman’s latest comments, and on July 11, the spot metal touched $1,298.73 an ounce, its highest since June 24.

Crude oil prices also surged this week, but later retreated on adverse supply/demand data from the Paris-based International Energy Agency (IEA).  U.S. crude futures pushed through $106 a barrel July 11, their highest in 16 months, boosted by another big decline in U.S. crude inventories last week as well as Bernanke’s comments. The U.S. Energy Information Administration (EIA) on July 10 reported a 9.9 million-barrel drop in U.S. crude stockpiles for the week ending July 5. This latest decline follows a fall of more than 10 million barrels reported by the EIA for the week ending June 28. The American Petroleum Institute (API) on July 9 had reported a 9 million-barrel decline for last week.

West Texas Intermediate crude for August on the New York Mercantile Exchange (Nymex) touched $106.66 a barrel on July 10, its highest in 16 months. However, U.S. crude retreated to $104.67 a barrel in midday trading in New York on Thursday following a report by the IEA expecting global oil supply to exceed demand in 2014, partly on growing North American production. The IEA expects supply growth to result in an additional 1.3 million barrels of oil a day in 2014, while global demand is seen growing by just 1.2 million barrels a day next year.

Brent North Sea crude, based on the August contract on the London-based ICE Futures Europe, moved above $108 a barrel in the first half of this week – a level not seen since early April this year – as tensions in Egypt continued to cause concerns over global oil supplies. However, Brent crude retreated to $106.75 a barrel on July 11 following the IEA supply/demand report. Meanwhile, the spread between the WTI and Brent at around $2 is now at its narrowest in two-and-a-half years.

Raw sugar and arabica futures benefited this week after Brazil’s central bank raised the benchmark lending rate on July 11, boosting prospects for a stronger real. The central bank increased the benchmark Selic rate by 50 basis points to 8.5 percent, its third consecutive increase. Brazil’s currency on July 10 sank to its weakest level against the U.S. dollar since April 2009, extending a 10 percent slump since March on concerns over the country’s economic performance. A weaker real provides an incentive to exporters of products sold in U.S. dollars, and has put further pressure on raw sugar and arabica prices which already are suffering on account of ample global supplies.

Raw sugar for October delivery on ICE Futures U.S. rebounded marginally to 16.27 cents a pound in early trading on July 11 after hitting 16.25 cents on July 10, the lowest settlement for a most-active contract since June 2010. Arabica coffee futures on ICE was also higher – at $1.2405 a pound.

Brazil, the largest sugar producer and exporter, is expected to produce a record crop this year. The London-based International Sugar Organisation (ISO) in late May raised its forecast global sugar surplus to 9.98 million tonnes for 2012/13 sugar year (Oct. 1-Sept. 30), up from the 8.63 million tonnes forecast in February, to reflect mainly higher production expectations in Brazil as well as in Mexico and Thailand. This surplus estimate will be revised again in late August, most probably upwards, according to Sergey Gudoshnikov, a senior economist at the ISO.

Gudoshnikov believes it is difficult to be optimistic about sugar prices currently. In May, the ISO had said it did not expect any price improvement for the coming 12 months.

“Based on the market fundamentals, there is light at the end of the tunnel, but we are talking the second half of calendar year 2014,” he said.

Cocoa futures traded higher this week, supported by concerns that dry weather in leading producer Ivory Coast and in Ghana could delay or even reduce prospects for the main crop later this year. The September contract on ICE Futures U.S. was up at $2,223 a tonne in early trading July 11, after touching $2,250 on July 5, the highest level for the second month since mid-June. September cocoa on London’s NYSE Liffe was trading at £1,534 a tonne July 11 after touching a three-week high of £1,542 on July 5. The cocoa market has rebounded strongly after the second month contract dipped to $2,135 a tonne in New York and £1,420 in London on June 24.  U.S. and E.U. cocoa grind data for the second quarter are released next week. This could trigger some selling interest if the so-called grind figures, an indication of demand, are disappointing, as speculated by some analysts and traders.

Robusta coffee futures continued to trade higher this week, buoyed by a drop-off in offers from Vietnam, the world’s biggest robusta producer and exporter. A slowdown in shipments from Indonesia, the second largest robusta producer,  was also a factor due to the start of the Ramadan holiday. Vietnam coffee exports in June fell to 100,000 tonnes, a 29 percent year-on-year decline, according to the country’s General Statistics Office. For the first half of 2013, exports were 23.4 percent down year-on-year to 804,000 tonnes, the statistics office data showed. The country’s farmers are thought to be holding back beans, waiting for prices to improve. Robusta coffee for September delivery touched $1,882 a tonne on NYSE Liffe in London this week, its highest since June 5.

Cotton futures moved higher as dry weather compounded ongoing drought conditions in Texas, the largest U.S. cotton grower, before retreating after the U.S. Department of Agriculture on July 11 reported it had increased its projections for the world crop. Cotton for December delivery fell 2.2 percent to 84.88 cents a pound on ICE Futures U.S. following the release of the report, the contract’s biggest loss in seven weeks. December cotton had touched 85.95 cents a pound on July 8, the highest for the most active contract since June 20.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author, Lynda Davies, can accept no responsibility for any errors or any consequence arising from the information provided.