Oil prices surged following Russia’s intervention in Ukraine, raising fears of global supply disruptions. Gold also climbed sharply while platinum and palladium prices are spiking upwards now after South African wage talks collapse again.
U.S. oil futures rose to their highest finish in over five months at near $105 a barrel as Russia moved to tighten its military hold on the Crimea, before easing back by midweek. Brent crude futures also climbed, reaching their highest settlement since late December.
The U.S. West Texas Intermediate (WTI) for April delivery on the New York Mercantile Exchange (Nymex) rallied $2.33 to settle at $104.92 a barrel on Mar. 3. This was the highest settlement for a most-active contract since mid-September. On the ICE Futures Europe exchange in London, Brent North Sea crude for delivery in the same month rose $2.13 to finish at $111.20 a barrel, a settlement level not seen since late December.
Oil prices slipped back at midweek amid some temporary easing of the geopolitical tensions as Russia appeared to soften its stance on Ukraine. But at the time of writing, the crisis was accelerating after Crimea’s parliament on Mar. 6 voted for the southern Ukrainian region to become part of the Russian Federation. A referendum on the decision is to be held on Mar. 16.
An unexpected rise in U.S. distillate fuels stocks, which include diesel and heating oil, also put pressure on oil prices as market players interpreted the inventories’ increase as a sign of softening U.S. energy demand.
The U.S. Energy Information Administration (EIA) on Mar. 5 reported a 1.4 million barrel rise in the country’s distillate fuel inventories in the week ended Feb. 28, taking the market by surprise; many had expected a further fall in distillate fuel stocks. The energy body said distillate fuel product supplied over the last four weeks at an average 3.6 million barrels per day was down 4.3 percent from the same period in 2013.
U.S. commercial crude stocks were also up, as was expected by the market; climbing 1.4 million barrels to 363.4 million barrels, according to the EIA. Gasoline inventories were 1.6 million barrels lower last week.
Crude oil for April delivery on Nymex fell $1.88 a barrel to settle at $101.45 a barrel on Mar. 5, its lowest finish since Feb. 14. Brent crude for April on ICE Futures Europe also finished lower, at $107.76 a barrel. But in late trade in London on Mar. 6. Brent crude had moved up above $108 a barrel.
Like oil, gold also moved up sharply on the Ukraine crisis as investors sought safe-haven assets like the precious metal. Weaker U.S. economic growth also added to the safe-haven appeal. Spot gold surged to a four-month peak of $1,349.50 an ounce in the pm fix on the London bullion market on Mar. 3. U.S. gold futures for April delivery on Comex jumped $28.70 to settle at $1,350.30 an ounce. This represented the highest finish for a most-active contract since Oct. 30.
At midweek, spot gold was down over $9 from Mar. 3, with the precious metal at $1,340.30 an ounce in the am fix in London on Mar. 6 U.S. gold futures also retreated with the April contract on Comex finishing at $1,334.25, and some $3.65 down on the day. But with tensions in Ukraine escalating at time of writing, gold futures had moved up again to $1,351 by early afternoon trade on Mar. 6
In contrast to oil and gold, copper dropped to a three-month low on Mar. 3 as investors bailed out of their base metal holdings as Russia upped the ante in Ukraine. Unlike the safe-haven appeal of gold, copper is among the assets perceived to be more risky to hold in times of geopolitical or economic crisis. Three-month copper on the London Metal Exchange (LME) hit a three month low of $6,944 a tonne on Mar. 3 before closing up at $6,968.
As some of the Russia-Ukraine tensions eased and the investor flight reversed, LME copper regained some of its early week losses to finish at $7,055 a tonne on Mar. 5.
Platinum, palladium up on wages impasse, Russia worries
Spot platinum prices spiked up to a five-and-a-half-month high this week after wage talks collapsed between the top three platinum producers and South Africa’s Association of Mineworkers and Construction Union (Amcu) on Mar. 5 as well on worries about Russian-Ukraine tensions.
South Africa produces around 40 percent of the world’s platinum while more than 80 percent of global palladium production is concentrated in just two countries: South Africa and the Russian Federation, with the latter country alone accounting for nearly half of total palladium supply.
The labour stoppage is affecting South African mines owned by Anglo American Platinum (AmPlats), Impala Platinum (Implats) and Lonmin and is now entering its seventh week.
Amplats said in a statement the talks have been “suspended indefinitely”. South Africa’s Commission for Conciliation, Mediation and Arbitration (CCMA), which has been acting as government mediator, said “the parties still remain far apart”. The latest round of wage talks took place on Mar. 3 and 4.
Amcu in its first concession since the strike began, said on Mar. 4 that it would now accept the pay increases to be staggered over four years rather than to become effective immediately. All three platinum producers have said Amcu’s revised demand remains unaffordable as it still represents an increase of 30 percent in the basic salary over four years.
Spot platinum climbed to $1,484 in the pm fix in London on Mar. 6, its highest since last September. Even on the eve of the strike, which began Jan. 23, the spot precious metal had moved up to just $1,458 but subsequently eased back. U.S. platinum futures on Comex reached $1,476.60 an ounce by close on Mar. 5, more than $47 up on a week earlier.
Sister metal palladium also spiked higher with the spot metal hitting $780 an ounce in the pm fix in London on Mar. 6.
Platinum and palladium prices, hitherto, have been largely unresponsive to the South African strike because the affected producers and fabricators had built up stocks ahead of the labour dispute. However, there are growing concerns in the market about supply, although a number of analysts are of the view there presently is sufficient metal around to meet demand.
The stoppage is costing the three affected producers around 9,900 ounces of platinum and an estimated 5,000 ounces of palladium daily in lost output. Lonmin in a statement this week warned that it will not achieve its sale guidance for this fiscal year ending Sept. 30, 2014. The company reported it has lost around 90,000 saleable platinum ounces as a result of strike action to date. It had targeted sales of in excess of 750,000 platinum ounces for the fiscal year.
Lonmin said it now “expects sales for the full [fiscal] year to fall further the longer the protected strike continues”, adding that the unit cost as a result will be “negatively impacted”.
The strike has cost Implats approximately 90,000 ounces of lost platinum production at its Rustenburg operation as of this week, amounting to around R2 billion ($186.1 million) in revenue lost (calculated at the current basket of metal prices), CEO Terence Goodlace said in a company statement this week.
Amplats reported it has lost approximately 4,000 platinum ounces of daily production, translating into R100 million of revenue value per day as a result of the stoppage, which has affected its Rustenburg, Union and Amandelbult operations, according to a company statement this week. All of Amplats’ South African process operations, the Mogalakwena mine and the majority of its platinum joint-venture operations continue to operate normally, it said.
Arabica soars above $2 a pound
Among the soft commodities, arabica coffee remains the best-performing soft commodity so far this year. This week, the May contract on New York’s ICE Futures U.S. exchange surged above $2 a pound for the first time in two years as the market continues to worry about the extent of crop damage in top grower and exporter Brazil’s key coffee-growing regions after protracted drought conditions.
May arabica gained 16.95 cents on Mar. 5 to settle at $2.024 a pound, a near 14 percent gain over the past week. Arabica futures have advanced around 80 percent so far this year on the Brazilian crop concerns.
Drought is also affecting top robusta coffee bean producer and exporter, Vietnam. The Vietnam Coffee-Cocoa Association (Vicofa) said this week the country’s coffee production will be “significantly lower” than last year on account of the dry weather spell being “quite severe” in Vietnam’s main coffee-growing area in the Central Highlands.
Prices for robusta coffee futures have risen around 20 per cent this year. The March contract on the London-based NYSE Liffe exchange settled at $2,113 a tonne on Mar. 5, a more than 25 percent gain on where it began 2014. Liffe May finished at $2,065.
Worries about drought damage in Brazil took raw sugar futures to a four-month high. Brazil is the biggest grower and exporter of the sweetener. Raw sugar for May delivery on ICE Futures U.S. touched 18.47 cents a pound in trading on Mar. 6. The previous day the May contract had settled at 18.28 cents.
May refined, or white, sugar, on London’s NYSE Liffe exchange closed at $485.30 a tonne on Mar. 5,
ICE cocoa futures continued to consolidate this week after reaching a 28-month high on Feb. 21. Concerns about a global cocoa shortfall amid strengthening demand for the key chocolate-making ingredient are providing support for cocoa. The commodity was the star performer in 2013, with futures prices in both New York and London markets finishing the year 20 percent up on where they began. This year, cocoa futures prices have advanced almost another 10 percent as demand continues to outstrip supply.
Cocoa futures on New York’s ICE Futures U.S. exchange finished $14 up at $2,969 a tonne at midweek. ICE cocoa futures hit a 28-month intraday high of $2,975 on Feb. 21.
Late last week, the London-based International Cocoa Organization (ICCO) forecast a second successive year of world production deficit. In its first forecast for 2013/14, which began on Oct. 1, the ICCO estimated world cocoa production falling 115,000 tonnes short of expected consumption. While output will rise this season, by 4.1 percent to 4.104 million tonnes from a revised 3.942 million tonnes in the prior year, it will not be sufficient to meet consumption – as measured by grindings – which is seen growing by 2.5 percent to a record 4.178 million tonnes, the ICCO reported Feb. 28.
In addition to the forecast record consumption, the cocoa body cited concerns about black pod disease in Cameroon, a disease also affecting Nigeria’s cocoa crop, and Indonesia’s ageing cocoa trees, as the main reasons for the shortfall. ICCO expects Cameroon’s cocoa output to fall by 15,000 tonnes to 210,000 tonnes in 2013/14 and Nigeria is projected to produce a smaller crop at 220,000 tonnes. In Indonesia, ICCO expects production to fall to a 10-year low of 410,000 tonnes.
The cocoa body in its latest report also revised upwards the size of the global shortfall of cocoa in 2012/13 by 14,000 tonnes to 174,000 tonnes.
Meanwhile, U.S. cotton futures remain supported by concerns about tight supplies of the fiber. The market is expecting the U.S. Department of Agriculture (USDA) next week to reduce its outlook for ending inventories in the U.S., the world’s biggest cotton exporter. The USDA World Agricultural Supply and Demand Estimates report (Wasde) is scheduled for release Mar. 10.
The most active May cotton contract on ICE Futures U.S. closed 1 percent up at 89.22 cents a pound on Mar. 4. Last week, May cotton had touched a six-month high of 90.44 cents in intraday trading, the highest for a second position contract since late August.
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