AfkInsider Commodities Report: China, Eurozone Data Boost Copper

AfkInsider Commodities Report: China, Eurozone Data Boost Copper

Copper led gains in industrial metals this week on better-than-expected manufacturing data from China and the Eurozone.

The data provide a positive signal for demand for the red metal – China is the world’s biggest copper consumer – as well as being important for other industrial metals, and gives support to prices.

The positive signals for the Chinese economy also helped oil; China is the second largest oil consumer after the U.S. Gold futures initially were knocked off their six-week highs following renewed investor nervousness about the U.S. Federal Reserve’s timetable for the start of scaling back its economic stimulus program, but later recovered. Meanwhile, a number of agricultural commodities continued to languish amid a surfeit of supply. But cocoa futures kicked the trend, remaining supported by West African crop concerns.

London Metal Exchange (LME) three-month copper held on to most of its gains this week after reaching a 10-week high of $7,420 a tonne at the PM kerb close on Aug. 16.  Three-month copper was at $7,388 a tonne in early trade on Aug. 21, but was expected to move higher.

HSBC on Aug. 22 provided further positive data on both China and the Eurozone’s manufacturing sectors. HSBC said its Flash China manufacturing PMI showed a swing out of contraction for August, with the preliminary manufacturing PMI rebounding to a four-month high of 50.1. The 50 level separates contraction from expansion. In July, the HSBC China manufacturing PMI hit an 11-month low of 47.7. While some individual country numbers disappointed, the banking group’s Flash manufacturing PMI for the Eurozone as a whole moved up to 51.3 in August from 50.3 in July and its highest level in 26 months.

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For copper and other industrial metals, the positive PMI data more than offset heightened concerns this week that the U.S. Federal Reserve would start to scale back its economic stimulus program, following the release on Aug. 21 of the minutes from the Fed’s Open Market Committee latest meeting. According to some news reports, the minutes hinted that a degree of tightening lies ahead but the timing remained vague. The Fed is currently committed to purchasing $85 billion in bonds each month.

But, after hitting six-week highs on Aug. 16, gold futures fell back this week on the market uncertainty over the U.S. Fed’s plans before recovering on the positive Chinese data. The most actively traded contract on the Comex division of New York’s Nymex – December – fell to $1,367 an ounce on Aug. 21. It subsequently recovered to $1,370 in early trade on Aug. 22, close to last week’s high when December gold settled at $1,371 on Aug. 16.

U.S. light, sweet crude oil futures also fell this week despite the better-than-expected manufacturing data from China and a further decline in the top consumer’s crude inventories last week. For U.S. oil futures, positive Chinese manufacturing numbers and U.S. crude inventory data were outweighed by concerns over the timing of the Fed’s tapering of its economic stimulus program. It’s feared that scaling back its monthly bond buying would impact global oil consumption.

The U.S. benchmark West Texas Intermediate (WTI) for September delivery on New York’s Mercantile Exchange (Nymex)  finished at $103.85 a barrel on Aug. 21, the lowest settlement since Aug. 8 and down $3.61 on last week’s close at $107.46 a barrel.

North Sea Brent crude prices continue to be supported by labor disputes in Libya which have reduced production and exports from that country. But concerns about potential disruption to the strategic Suez Canal and Sumed Pipeline oil routes amid civil unrest in Egypt have eased somewhat despite continued sporadic violence in the North African country. North Sea Brent crude oil for October delivery on ICE Futures Europe touched $110.14 a barrel on Aug. 22, after slipping to $109.90 at the start of the week. Last week, October Brent reached $111 a barrel after violent clashes between Egyptian security forces and supporters of the ousted president Mohamed Morsi.

In its latest report on Aug. 21, the U.S. Energy Information Administration (EIA) said the country’s stockpiles of crude oil fell by 1.4 million barrels for the week ending Aug. 16.

Cocoa holds up among softs

Among the soft commodities, cocoa futures prices continue to be supported by investor buying on the back of ongoing concerns about the impact of dry weather on the upcoming main crops of the top producer Côte d’Ivoire and other West African growers. A further boost came from expectations that improving economic data in the U.S. and Europe could lead to an increase in cocoa demand, analysts said.

Cocoa for December delivery on ICE Futures U.S. settled lower on Aug. 21 at $2,450 after touching a fresh eight-month high of $2,550 the previous day. In London, December cocoa on NYSE Liffe by Aug. 22 had eased back from last week’s 10-month high of £1,671 to £1,630 in late trade on Aug. 22.

Cotton futures on ICE Futures U.S. were lower this week amid indications of improving global crop prospects, ending a recent rally in prices. Prices fell after a better-than-expected production forecast for India, which is the world’s second largest cotton grower after China.

The Cotton Association of India said on Aug. 20 the country would produce 4.6 percent more cotton this season due to the good rainfall during the monsoon. The industry group estimates India’s farmers will produce about 37.2 million bales (170 kilograms each) in the 2013-14 marketing season – way higher than the U.S. Department of Agriculture (USDA) forecast for India last week.

The December contract on ICE Futures U.S. fell to 88.86 cents a pound following the news and by Aug. 21’s close was down further at 84.30 cents.

ICE cotton futures had powered to a 17-month high last week, supported by increasing concern about the condition of the U.S. crop. Cotton for December delivery touched 91.92 cents a pound in New York, the contract’s highest since March 2012, after the USDA on Aug. 12 cut forecasts for U.S. and China crops and world stocks at the end of the 2013-14 year. The U.S. department reduced its forecast for U.S. production for 2013-2014 by 447,000 bales to 13.1 million, the smallest since 2009. Ending stocks are now forecast at 2.8 million bales.

Raw sugar continued to move lower on a tumbling Brazilian real, which is encouraging more selling by the top-producing country and Brazilian cane millers to divert more cane to sugar production rather than for ethanol on account of the more attractive prices. Brazil’s real is now at a more-than four-year low against the U.S. dollar, despite the country’s central bank efforts to support the domestic currency.

Raw sugar for October delivery on ICE Futures U.S. settled at 16.35 cents on Aug. 21 and over 59 cents lower than its close on Aug. 16. The front month had touched a seven-week high of 17.29 cents a pound in mid-August, up from a three-year low of 15.43 cents seen in mid-July.

White sugar for October delivery on London’s NYSE Liffe was also down at midweek at $483.60 a tonne. This compares to its Aug. 16 settlement of $503.30 a tonne.

Arabica coffee futures were also pressured by the softening Brazilian real. Earlier concerns over frost damage to the country’s coffee crop have faded as significant production losses in key growing areas have not materialized. Arabica coffee for December delivery on ICE settled at $1.1715 a pound on Aug. 21. December arabica had closed last week at $1.2365 a pound, and 1.6 percent down for the week.

November robusta coffee on London’s NYSE Liffe was also lower this week as another bumper crop is expected from top robusta grower Vietnam in 2013-2014 following favorable weather for the upcoming crop, which starts Oct. 1. Vietnam’s producers holding back from sales and worries surrounding tight inventories triggered a run-up in robusta prices in recent weeks. November robusta on NYSE Liffe had slipped to $1,809 a tonne by midday on Aug. 22, its lowest level since early July, and $92 down on Aug. 16’s settlement at $1,901 a tonne.

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.