AFKI Commodities Report: Strike Lifts Platinum Prices

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Written by Lynda Davies

Spot platinum prices rose to near three-month highs early last week as South African platinum mine workers voted for strike action. Spot gold reached close to six-week highs while U.S crude moved higher. Among soft commodities, ICE cotton futures continued to rally on strong U.S. exports.

Platinum prices initially climbed to their highest level in almost three months after South Africa’s Association of Mineworkers and Construction Union (AMCU) said workers at the country’s top three platinum producers would begin a strike on Jan. 23. Amcu members had voted for strike action at mines owned by Impala Platinum (Implats) and Lonmin. On Jan. 19, union members at Anglo American Platinum (Amplats), the world’s biggest platinum producer, also voted to join the proposed strike.

Spot platinum rose to $1,469.50 an ounce on Jan. 20, the highest level for the spot price since Oct. 31. But by Jan. 23, even as platinum miners began their strike, prices had eased back to $1,454.

South African mines produce around half of the world’s platinum but analysts say they are not anticipating a long run-up in prices given that the market is seen to be well supplied. The three affected producers have built up some inventories, anticipating the labor action.

Sister metal palladium was largely flat at $745-$746 through the week.

AMCU on Jan 20. extended the strike plans to include the country’s gold mining sector,  serving notices of intended strikes at Sibanye Gold’s Driefontein mine, Harmony Gold’s Kusaselethu and Masimong mines, and at AngloGold Ashanti’s South African operations. But the union was forced to delay the gold sector strike following a delay in a labor court ruling as to whether the strike could be regarded as “protected.”  Protected strikes in South Africa mean workers do not face dismissal or disciplinary procedures as a result of labor action. The is now scheduled for Jan. 30.

Spot gold initially hit a near six-week high before easing back, although most of the support came from investor confidence on the back of a softer U.S. dollar and lower equities. Spot gold touched $1,259.85 an ounce on Jan. 20, its strongest level since mid-December, before slipping to a near two-week low of $1,232.07 an ounce on Jan. 23.

In addition to a rebound in equities, slower physical demand for gold from China weighed on the precious metal. The country’s gold buying had previously been robust ahead of the Lunar New Year holiday that starts at the end of January. Gold market watchers are also looking ahead to the U.S. Federal Reserve’s Federal Open Market Committee meeting to be held Jan. 28-29. There is speculation that the Fed could make a further reduction in its monetary stimulus package, which could put pressure on gold prices.

U.S. futures markets were closed on Jan. 20 because of the Martin Luther King Jr. holiday, but gold for February delivery on the Comex division of the New York Mercantile Exchange (Nymex) finished at $1,259.30 an ounce on Jan. 23, largely unchanged on the previous week’s close at $1,251.90

Copper prices, meanwhile, were lower on the London Metal Exchange (LME) and on Comex amid concerns about a slowing Chinese economy. Benchmark three-month copper on the LME had slipped to $7,258 a tonne by close on Jan. 23, down from $7,340 at the end of last week. Copper for delivery in March on Comex was down $48 on the week to $3,297 a pound.

Data for China’s gross domestic product released by the country’s National Bureau of Statistics on Jan. 20 showed the country’s economic growth slowed in the fourth quarter on lower investment spending as a result of more expensive credit. The latest flash Purchasing Managers’ Index (PMI) produced by Markit Economics for HSBC showed the Chinese manufacturing economy contracted for the first time in six months in January.  The preliminary reading of 49.6 for January– released Jan. 23 – was below a final figure of 50.5 in December. A number below 50 indicates contraction.

“As well as indicating slower economic growth, the survey also pointed to a steepening rate of job losses and a marked decline in inflationary pressures,” Markit  Economic Research Chief Economist Chris Williamson said in the flash PMI statement.

The Markit-HSBC PMI is seen as an indicator of China’s copper demand. The country is the world’s largest consumer of the red metal, accounting for typically around 40 percent of world consumption.

Other data showed China imported 5.8 percent less refined copper in 2013, compared with a year earlier. China customs data showed refined copper imports totalled 3.21 million tonnes last year compared with a record 3.4 million tonnes in 2012. December arrivals of 312,371 tonnes were 5 percent lower than in November but 30.8 percent higher than a year earlier.

U.S. crude breaks above $97, Brent tops $108

U.S. oil futures recorded their highest close in three weeks on Jan. 23, amid a weaker U.S. dollar and a larger-than-expected drop in the country’s distillate fuel stocks. The rise came despite the country’s Energy Information Administration (EIA) reporting the first rise in U.S. commercial crude inventories in eight weeks. The EIA said U.S. crude oil inventories rose 1 million barrels for the week ending Jan. 17, taking the country’s total commercial crude stocks to 351.2 million barrels. However, the government body reported a 3.2 million-barrel fall in distillate fuel inventories.

March  light, sweet crude – the West Texas Intermediate – on Nymex settled 59 cents up on the day at $97.32 a barrel after the EIA released its latest oil market report on Jan. 23.

U.S. crude prices were also supported by the start of TransCanada’s Gulf Coast pipeline on Jan. 22. The pipeline ultimately will carry 700,000 barrels of oil per day from Cushing, Okla. — the delivery point for the Nymex crude contract — to Gulf Coast refineries.

European benchmark Brent North Sea crude futures for March delivery on London’s ICE Futures Europe exchange moved above $108 a barrel for the first time this year after the International Energy Agency on Jan. 22 raised its forecast for global oil consumption on a strengthening world economy. World consumption will increase by 1.3 million barrels a day this year to a record 92.5 million, the Paris-based agency said in its monthly Oil Market Report. This marks a 90,000-barrel-a-day increase from IEA’s December’s outlook and follows the first year of annual demand growth in developed countries in 2013 since 2010.

However, March Brent crude shed 68 cents to end at $107.59 a barrel the following day amid the downbeat manufacturing news from China and its implications for that country’s energy demand.

Among soft commodities, the rally in U.S. ICE cotton futures continued this week amid a strong pace of exports from the U.S., the top-ranking exporter. The most-active March contract on New York’s ICE Futures U.S. exchange settled at 88.13 on Jan. 21, the highest level for the front month since late August. ICE cotton eased back a tad by Jan. 23 to finish at 87.07 cents.

The U.S. Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) reported net export sales of U.S. upland cotton — the most common variety of the fiber grown in the country — of 223,700 running bales for the week ending Jan. 9. This was up “noticeably” from the previous week and 46 percent up from the prior four-week average.

However, U.S. cotton output in the current crop year, which ends July 31, is expected to be the lowest in four years, mainly due to lower plantings by the country’s farmers and bad weather in some of the Southeast U.S. growing states in 2013. The USDA revised its 2013-2014 cotton production estimates for the U.S. slightly upwards to 13.19 million 480-pound bales in its latest World Supply and Demand Estimate (Wasde) released Jan. 10. The country produced 15.57 million bales of cotton in 2011-2012 and an estimated 17.32 million bales in 2012-2013, according to the USDA data.

The upward climb in ICE cotton futures prices comes despite the USDA’s upward revision in its year-end cotton stock estimates to a record 97.61 million bales for 2013-2014 and China’s plans to soon stop stockpiling cotton. The Chinese government in 2014 intends to start trials of direct subsidies to cotton farmers and halt its stockpiling of domestic cotton. An end to the stockpiling program, which has helped support global cotton prices during the past three years, has been widely expected by the market for some months.

Sugar prices continued their downward spiral as global surpluses weigh on markets. Refined, or white, sugar futures on London’s NYSE Liffe exchange slipped to their lowest in almost five years this week. Liffe March refined sugar hit $403.50 a tonne on Jan. 22, the weakest for the front month contract since April 2009, before settling a shade higher at $404.35.

March raw sugar on New York’s ICE Futures U.S. exchange touched 14.97 cents a pound at midweek, the lowest level for the most-active contract since June 2010, before settling at 15.03 cents.

Arabica coffee prices similarly continued to retreat, with the March contract on ICE Futures U.S. slipping to settle at $1.1493 a pound on Jan. 22, down from $1.1718 at the previous week’s close. Robusta coffee also moved lower, settling at $1,685 a tonne basis the March contract on Jan. 22 , before recovering to finish at $1,713 on Jan. 23.

Meanwhile, cocoa prices found support from more positive grinding data in Asia, which is seen as a barometer of demand. The European Cocoa Association (ECA) reported the volume of cocoa beans processed by European chocolate manufacturers rose 6.2 percent in the final quarter of 2013 compared with the same prior-year period while the National Confectioners Association showed North American cocoa grindings rose 4.37 percent for the same period.

On Jan. 20, the Cocoa Association of Asia (CAA) said Asia’s cocoa grindings rose nearly 10 percent to 170,684 tonnes in the fourth quarter of 2013, up from 155,237 tonnes in the same period of 2012. The size of the increase surprised the market, given the 9-percent downturn in Malaysia’s fourth-quarter cocoa grind and a full calendar-year drop of 4.6 percent, as reported by the Malaysian Cocoa Board.

March cocoa on NYSE Liffe settled at £1,774 a tonne on Jan. 23 after dipping to a near two-week low of £1,717 on Jan. 21. The Jan. 23 finish was £43 up on the previous week’s close. ICE March cocoa settled at $2,796.50 on Jan 23, a tad up on Jan. 17’s close at $2,693.50 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 can accept no responsibility for any errors or any consequence arising from the information provided.