AfkInsider Commodities Report: Oil, Coffee, Cocoa Move Higher

AfkInsider Commodities Report: Oil, Coffee, Cocoa Move Higher

Copper prices have fallen 11 percent to 12 percent since the start of the year, with much of the losses related to investor flight from commodities in general.

Vivienne Lloyd, principal consultant for the Copper Market and Demand at CRU in London, said she believes much of the price loss since the first quarter, in addition to having a lot to do with the investor flight from commodities, has also been sparked by high visible copper inventory levels on the reported exchanges in the first and second quarters, particularly the London Metal Exchange.

Copper inventories on the LME currently are at around 10-year highs. However, Lloyd said she believes that a lot of the material that went into the exchanges was a relocation from invisible to visible sources.

“But nevertheless, it has dented the price,” Lloyd said. “Our view is that so much has gone out of the copper price, that there isn’t much more that can bring it down (further).

“Our numbers show a surplus in the copper market for this year, but it took place in the first half already. I see the second half of the year on a quarter-by-quarter basis as being fairly balanced in terms of supply and demand.”

Crude oil prices moved higher again this week, with North Sea Brent crude, the international benchmark, closing just below the $109 a barrel based on the September contract on ICE Futures Europe July 17.

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This marks a more than a 10 percent climb since the recent low on June 24. Analysts said the Brent price is being supported by a tight physical market as refineries return from maintenance turnarounds coupled with supply concerns due to production shortfalls and continuing worries over Egypt.

U.S. crude futures continue to trade near 16-month highs on the back of falling U.S. inventories. The U.S. Energy Information Administration (EIA) on July 17 reported another larger-than-expected drop in U.S. crude stockpiles. Inventories fell by 6.9 million barrels in the week ending July 12, the third week in a row steep declines have occurred.  However, the decline was offset by gains in U.S. petroleum product stockpiles, capping potential crude price gains. The U.S. benchmark West Texas Intermediate crude for August delivery on the New York Mercantile Exchange (Nymex) gained 16 cents on the day to end July 17 at $106.48 a barrel.

Copper prices at midweek were trading close to the near one-month highs seen on July 11, with the three-month price on the London Metal Exchange (LME) touching $7,046 a tonne on July 17 before slipping back to $6,970. U.S. Federal Reserve chairman Ben Bernanke reiterated the bank would later this year taper its bond-buying program if the country’s economic recovery remains on track. But he also continued last week’s dovish tone that the time frame could change if there was a downshift in economic outlook, which hit the dollar and limited the impact on copper prices.

Lloyd’s view on China is that it is better this year and she is anticipating a 6 percent demand growth for copper in the country in 2013. But she noted there have been signs lately of a little weakening. The credit crunch that people are describing is affecting the China’s manufacturing activities, and in turn is having an impact on its copper consumption.

Lloyd anticipates a negligible surplus of around 150,000 tonnes next year in a 20-21 million tonne market, and she doesn’t see the real big surpluses coming in until 2015.

“We see a bit more stability in the price in the remaining months of 2013, with prices edging back up to trade in the low $7,000s for the rest of the year,” she said, adding there’s no appetite for the price to “race away upwards,” given the fear on the investor/fund side. Lloyd said she sees no return to the $8,000-plus levels seen earlier this year.

Gold continued to be supported by Federal Reserve chairman Ben Bernanke’s latest comments this week but failed to break through the key $1,300-an-ounce level. Gold for August delivery on the Comex division of Nymex touched $1,299.70 an ounce on July 17 before slipping back to settle at $1,277.50. Spot gold, meanwhile, nudged up to $1,295 an ounce in the wake of Bernanke’s comments, but was still $3 off last week’s near-$1,299 an ounce. Other precious metals were trading marginally lower midweek, with spot platinum and sister metal palladium at $1,403.75 and $728.22 an ounce early July 18.

Meanwhile, some of the soft commodities saw further gains this week. Cocoa futures continued to be driven higher, boosted by news that top producer Ivory Coast has sold a sizeable portion of its 2013-14 crop ahead of schedule and sparking concerns over available supplies in the new crop that starts on Oct. 1. The producer had sold 750,000 tonnes of its 2013-14 crop as of the end of June, according to the country’s Coffee and Cocoa Council (CCC).  The volume equates to about half the West African country’s typical annual cocoa output in the past three years and brings Ivory Coast close to its forward sale target of 80 percent of the harvest.

An unexpected rise in Asia’s bean-processing volumes during the second quarter  – an indication of demand – also provided support. Singapore-based Cocoa Association of Asia on July 17 said processing rose 2 percent to 153,792 tonnes in the second quarter of 2013 compared with the same prior-year period. Analysts and traders had expected grindings to have fallen. European grindings were also up. The European Cocoa Association in Brussels July 15 reported grindings increased 6.1 percent in the second quarter. The Washington, DC-based National Confectioners Association is due to release cocoa grindings for North America late July 18.

Cocoa for September delivery climbed to $2,328 a tonne during early trading on July 18 trading, the highest for a second month since June 13. On London’s NYSE Liffe, September cocoa advanced to £1,598 a tonne July 18.

Arabica coffee futures were also higher, climbing to a more-than five-week high. Arabica was buoyed by forecasts of cold weather in top producer Brazil’s growing regions, triggering fears in some quarters of potential frost damage to coffee crops. September arabica coffee on ICE Futures U.S. climbed to $1.34 a pound in early trading on July 18, the highest level for a most-active contract since May 21.

Robusta coffee futures continue to be lifted by a sharp fall in exports from Vietnam, the world’s largest robusta producer and exporter, and slow deliveries in Indonesia. Robusta coffee for September delivery on NYSE Liffe climbed to $1,965 a tonne July 16, the highest for a most-active contract since May 24.

In contrast, raw sugar recorded fresh lows this week with the October contract on ICE Futures U.S. dropping below 16 cents a pound for the first time in three years as producer selling and a global supply glut continued to weigh on the market. A further weakening in the Brazilian real against the U.S. dollar encouraged more sales from the world’s biggest sugar-producing and exporting country. October raw sugar on ICE Futures dipped to 15.93 cents a pound during July 17 trading before settling at 16 cents a pound, the lowest settlement for an active month since June 29, 2010. The October contract was trading a tad up early July 18, it highest in over a week. Raw sugar is around 18 percent down since the start of the year.

 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.