AfkInsider Commodities Report: Crude, Gold, Copper Rally On Fed Decision

AfkInsider Commodities Report: Crude, Gold, Copper Rally On Fed Decision

The U.S. Federal Reserve’s surprise move this week to delay scaling down its massive monetary stimulus program boosted many commodity prices as well as global equities.

Many had anticipated that the Fed would start to scale back its bond-buying program. After a closed-door meeting of the Federal Open Market Committee, the Federal Reserve said  Sept. 18 it will keep its $85-billion-a-month bond-buying intact while it awaits “more evidence that progress (in the U.S. economy) will be sustained before adjusting the pace of its purchases.”

Crude oil futures rallied within minutes of the announcement, with Brent crude for delivery in November on ICE Futures Europe moving up to $110.60 a barrel by close. The U.S. crude benchmark, West Texas Intermediate (WTI), for October delivery on the New York Mercantile Exchange (Nymex) climbed to settle at $107.28. U.S. crude futures were also boosted by another fall in the country’s crude inventories last week. According to data from the U.S. Energy Information Administration on Sept. 18, U.S. crude stocks dropped by 4.4 million barrels to 355.6 million barrels, their lowest level since March 2012. The decline was far greater than had been anticipated by the market.

Early in the week, November Brent crude slumped to a one-month low of near $108 a barrel after the U.S. and Russia struck a deal to avert a military strike on Syria. The news eased market concerns about potential disruption to oil supplies from the Middle East. Brent hit a six-month peak of $117.34 in late August when a U.S. military strike against Syria appeared imminent. The resumption of output at a large oilfield in western Libya also put pressure on crude prices, particularly Brent. Strikes and politically-motivated unrest have hampered much of the North African country’s oil flows in recent weeks.

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WTI crude for October delivery dropped to $105.42 on Sept. 17, down from $107.82 a barrel a week earlier.

Gold also surged on the surprise Fed move to hold off tapering. The precious metal moved up sharply following the Fed’s announcement. By midday on Sept. 19, the most actively traded gold contract – December – on the Comex division of Nymex was trading at $1,368.40 an ounce, having earlier touched a high of $1,375.10. Early in the week, gold was languishing at around $1,300, a six-week low for the precious metal. Some analysts believe the Fed’s decision not to taper brings inflation risks back into focus, which is positive for gold investment.

Platinum and palladium futures also rallied. Platinum for October delivery on Nymex was trading at $1,466.15 an ounce at midday on Sept. 19, after settling at $1,425.20 the previous day. December palladium was trading at $735.90 an ounce after closing at $703.10 on Sept 18.

Hitting a five-week low the end of last week, copper was lifted by both the easing of concerns over Syria and the Fed’s decision to keep its bond-buying program unchanged. Three-month copper on the London Metal Exchange (LME) touched $7,305 a tonne on Sept. 19, the highest since Aug. 28 and up more than $281 on the five-week low seen Sept. 13.

The red metal is now up around 7 percent from the three-year low hit in late June, supported by improving sentiment on global growth, particularly in China, which accounts for around 40 percent of global copper consumption. However, copper is still some way off the $7,420 a tonne, basis the three-month price, reached in mid-August.

Cotton up on U.S. crop worries

Cotton futures moved higher again this week, supported by data from the latest U.S. Department of Agriculture (USDA) Crop Progress report, released Sept. 17, which reconfirmed concerns about deteriorating conditions and lower yields in the world’s biggest exporting country and especially in the top-growing state of Texas. The USDA said the proportion of plants in “good” or “excellent” condition for the week ending Sept.15 fell by 2 percentage points to 43 percent from the prior week. Fifteen states represent 99 percent of the country’s 2012 planted cotton acreage. In Texas, only 31 percent of the cotton plants were in “good” or “excellent” condition last week, according to the government agency. USDA revised downwards its production projections for the U.S. in the current crop year (Aug. 1, 2013-July 31, 2014) to 12.90 million 480-pound bales from 13.05 million bales in August and projected U.S. exports to 10.40 million bales from 10.60 million bales in August.

The most active December cotton contract on the ICE Futures U.S. exchange climbed to settle at 85.54 cents a pound on Sept. 18, up 108 cents on where it began the week.

U.S. production notwithstanding, global cotton supplies are forecast to outstrip demand in the 2013-2014 crop year, with another year of surplus. USDA raised its forecast for world production to 117.42 million bales from 116.38 million bales in August. China is the focus of hopes for global demand. The country launched a cotton reserve-building program in 2011, which has led to strong import buying. But there has been some concern that it is considering implementing changes to the program. Analysts at Societe Generale are among those who anticipate a slowing of China’s cotton imports this year ahead of modifications to the country’s cotton policy next year.

Coffee futures tumbled to fresh lows this week amid continuing bearish influences. Both arabica and the cheaper variety, robusta, are weighed down by global supply gluts.  Arabica coffee futures fell to their lowest since July 2009 following the latest data from the New York-based Green Coffee Association. The association showed U.S. inventories of unroasted coffee rose 2.4 percent in August to 5.56 million 60-kilogram bags, their highest since July 2009. Arabica coffee for December delivery on ICE Futures U.S. ended at $1.1468 a pound on Sept. 18, the lowest settlement since mid-July 2009.

However, arabica futures gained after the U.S. Fed announced it will not scale back the $85 billion-a-month bond buying program. In early trading on Sept. 19 on ICE Futures, December arabica touched a high of $1.1665 a pound.

Robusta coffee futures on Sept. 17 dropped to their lowest since October 2010, with the November contract on NYSE Liffe in London touching $1,660 a tonne. By close on Sept. 19, November robusta was $21 off this low at $1,681. Analysts said aggressive selling into the November contract as well as the negative inventory data on U.S. coffee  inventories prompted the Sept. 17 price slide.

Robusta futures prices fared better than arabica though, falling by around 13 percent so far this year; arabica prices are down by around 20 percent. The lower robusta prices prompted farmers in Vietnam, the biggest robusta producer, to hold back selling beans.  However, the country is expected to harvest a record crop in the 2013-2014 season, although the main shipments will only start in December.

Amid continuing uncertainty over supplies from the key producing region, West Africa, cocoa futures in New York hit a one-year high at the start of this week, before dropping back. Cocoa for December delivery on ICE Futures U.S. touched $2,648 a tonne Sept. 17, the highest since Sept. 17, 2012, only to slip back to settle at $2,617.50 by midweek. London cocoa for delivery the same month on NYSE Liffe settled lower at £1,709 a tonne on Sept. 19. Among the soft commodities, cocoa has been the star performer in 2013, with futures prices on ICE having risen around 17 percent so far this year on a front-month basis.

However, according to Macquarie Group in a report last week, this is a temporary setback, with prices set to stay high for at least the next six months, on account of the production setbacks in top-producing countries Côte d’Ivoire and Ghana, and rising demand. Macquarie estimated the world production deficit at just 11,000 tonnes in the 2012-2013 cocoa year, which ends Sept. 30, increasing to 173,000 tonnes next season, before reducing to 113,000 tonnes in 2014-2015.

Elsewhere on the soft commodities market, raw sugar for delivery in March on ICE Futures U.S. settled at $16.91 a pound on Sept. 18 while the white or refined sugar price for December on London’s NYSE Liffe closed at $481.20 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.