AfkInsider Commodities Report: Oil, Copper And Gold Fall, Softs Gain

AfkInsider Commodities Report: Oil, Copper And Gold Fall, Softs Gain

Crude oil prices initially weakened again last week as the partial shutdown of the U.S. government that began Oct. 1 sparked concerns that the country’s economic growth and energy demand could be hit.

The U.S. government began the partial shutdown after Congress failed to agree to a new budget.  Further pressure on oil has come as the supply issues that had impacted the market in recent weeks are now being resolved.

Raising doubts over the strength of U.S. energy demand, the U.S. Energy Information Administration (EIA) on Oct. 2 reported another increase in the country’s crude oil inventories. The government agency in its latest weekly crude oil report said U.S.  commercial crude oil inventories increased 5.5 million barrels to 363.7 million barrels in the week ending Sept. 27, and that stocks are toward the upper range for this time of year.  The week prior, crude oil inventories increased 2.6 million barrels to 358.3 million barrels. EIA attributed the increases to lower demand from U.S. refineries as well as higher imports.

For U.S. crude oil prices, the bearish inventory report was to some degree offset by news that that TransCanada Corp’s Keystone XL Gulf Coast pipeline would open toward the end of the year. The pipeline will carry crude oil from Crushing, Okla., to Nederland, Texas, and is set to lower transportation costs. The U.S. benchmark West Texas Intermediate (WTI) for November delivery jumped more than $2 a barrel in New York trade on Oct. 2, settling at $104.10. The previous day, November WTI had lost 29 cents to finish at $102.04 a barrel on the New York Mercantile Exchange (Nymex). Earlier that day, WTI had touched a low of $101.06 a barrel.

The European benchmark Brent crude for delivery in November on ICE Futures Europe finished at $109.19 on Oct.2, after losing 43 cents the previous day to end at $107.94 a barrel.

U.S. copper futures fell to their lowest in almost a month this week as the partial shutdown of the U.S. government sparked risk aversion in global markets and worries about economic growth.  In industrial metals markets, the impact of U.S. budget concerns more than overshadowed a raft of positive manufacturing data from China, the U.S. and Europe as well as a further drop in copper inventories held by the London Metal Exchange (LME). LME copper inventories fell by around 19 percent during the third quarter to 533,325 tonnes.

Copper futures for delivery in December settled at $3,316 a pound on the Comex division of Nymex on Oct. 2. On the LME, copper for delivery in three months fell to $7,182 a tonne by close on Oct.2., 1.6 percent or $118 down on Sept. 27’s finish at $7,300 a tonne. Copper futures prices have lost around 10 percent of their value so far this year, mainly on concerns that supplies will outpace demand.

Gold settled at its lowest price in nearly eight weeks early last week as the first U.S. government shutdown in 17 years prompted some investors to pull out of the precious metal. Slow demand for gold in key physical markets is also dogging the market. Gold for December delivery, which is the most active contract, fell more than $40 an ounce on Oct.1, to settle at $1,286.10 an ounce on the Comex division of Nymex. This marked its lowest settlement in nearly two months. December gold edged up 2.7 percent to $1,320.70 an ounce by close the following day, helped by the fall in the U.S. dollar to an eight-month low against other major currencies.

Raw sugar climbs on Brazilian harvest delays

Raw sugar futures continued their upward climb this week, reaching six-and-a-half month highs on Oct. 2. Wet weather in Brazil’s main sugar-growing state, São Paulo, is delaying the harvest. There are concerns too that the delayed harvesting will leave more cane vulnerable to cold, wet weather.

The Brazilian sugar cane industry association, Unica, on Oct. 1 pared its forecast for the cane harvest in the key Center-South region by 2.6 million tonnes to 587 million tonnes this season (Oct. 1, 2013-Sept. 30, 2014). Unica’s prior forecast had been higher than those of many sugar-market analysts and its latest forecast is now more in line with those other forecasters. For sugar production, the industry association made bigger cuts to its estimate for the 2013-2014 season, reducing its forecast by 1.3 million tonnes to 34.2 million tonnes. Unica attributed the cut mainly to the reduced sugar content of the cane on account of cold and wet weather earlier this year.

Brazilian mills also have been directing more cane to make ethanol instead of sugar compared to last season due to low sugar prices, which slumped to three-year lows in July.  Raw sugar for March delivery on the ICE Futures U.S. exchange finished at 18.51 cents a pound on Oct. 2, the highest settlement since March 15.

White, or refined, sugar futures prices, meanwhile, continued to trade around the same levels as the week prior. The December white sugar contract on NYSE Liffe in London settled at $492.45 a tonne on Oct. 2.

Arabica coffee was also trading higher again this week, with the December contract on ICE Futures U.S. settling 0.3 percent up, at $1.1438 per pound on Oct. 2. Front-month arabica had slipped to $1.1105, a more than four-year low, two weeks earlier, pressured by a huge off-year harvest in top producer Brazil.

Robusta coffee rebounded from the fresh three-year low recorded on Sept. 27. The benchmark January contract on NYSE Liffe had dropped to $1,596 a tonne as production in leading robusta-growing country, Vietnam, gathers pace.  By Oct. 2, January robusta had gained $66 to trade at $1,662 a tonne.

But cocoa was trading lower again last week despite continued concerns about supplies from key-producing region, West Africa. Cocoa futures in both London and New York reached one-year highs last month amid the supply worries. December cocoa futures on NYSE Liffe settled at £1,686 a tonne at midweek, some £20 off the one-year high of £1,706 a tonne recorded on Sept. 5. ICE Futures December cocoa in New York finished at $2,635 a tonne. The ICE front month had climbed to $2,657 a tonne on Sept. 19, a one-year high.

Meanwhile, U.S. cotton futures prices continued to edge up last week after touching a five-week high on Sept. 27. Cotton for delivery in December on the ICE Futures U.S. exchange rose 1.4 percent, or 1.16 cents, to 86.63 cents a pound, the highest settlement since Aug. 20. The climb followed reports that China’s Ministry of Agriculture now expected a smaller cotton crop this season. The lower forecast for China, which is the world’s top cotton producer and consumer, added to concern about smaller-than-expected crops in the two other top cotton-producing countries, the U.S. and India. The output worries prevail despite a forecast global inventory build this cotton year to a record of almost 95 million 480-pound bales by July 31, 2014, according to the U.S. Department of Agriculture’s (USDA) latest estimate.

According to new reports, an official in the Department of Crop Production of China’s Ministry of Agriculture now expects to produce 6.32 million tonnes of cotton in 2013, down some 5 percent from last year’s 6.657 million tonnes. The official was speaking at an industrial conference held by the China Cotton Association. He attributed the output decline to a smaller acreage planted to cotton and unfavorable weather.

Cotton futures were also boosted at midweek by the fall in the U.S. dollar to an eight-month low against other major currencies. By close on Oct. 2, December cotton on ICE Futures U.S. settled at 86.87 cents, up 24 cents or 0.3 percent on the week to date.

The U.S. Intercontinental Exchange Inc. is planning to launch an international cotton contract in early 2014. The new contract will be listed alongside ICE’s existing contract, which is used as a benchmark for global prices but accepts only cotton grown in the U.S.  It is understood the other origins for the new contract are still to be finalized.

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.