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AFKI Commodities Report: Palladium At 31-Month High

AFKI Commodities Report: Palladium At 31-Month High

U.S. oil prices edged up on further inventory falls at Cushing and rising gasoline demand, while Brent crude was supported by supply disruptions after Russia made its first move on Ukraine. Gold fell to a six-week low on the prospect of U.S. interest rate rises but palladium soared to a 31-month high on Russian supply worries. Among the soft commodities, arabica coffee continued its retreat from two-year highs as much-needed rain arrived in key-growing areas of southern Brazil.

U.S. crude oil futures moved back above $100 a barrel on Mar.26 to reach their highest point in a week. Prices were buoyed by falling crude inventories at the key Cushing, Oklahoma storage hub and rising gasoline demand. The benchmark West Texas Intermediate (WTI) for May delivery on the New York Mercantile Exchange (Nymex) finished the day $1.07 up at $100.26 a barrel.

Crude stocks at Cushing fell for the eighth straight week last week, the U.S. government Energy Information Administration (EIA) reported on Mar. 26. Inventories at the Mid West hub fell a further 1.3 million barrels to 28.5 million during the week ending Mar. 21. A year ago, as much as 49.5 million barrels of crude were in store at Cushing.

Inventories at Cushing have declined by just over 13 million barrels since the week ending Jan. 17, according to EIA data. Much of this drawdown is due to the start of commercial lifting on Jan. 22 of TransCanada Corp.’s Gulf Coast pipeline which runs to Nederland, Texas from the storage hub.

While the falling Cushing inventories show this supply bottleneck is being alleviated, crude stocks at the U.S Gulf Coast have risen by more than 38 million barrels since Jan. 17. Last week, they hit their highest on record at 200.3 million barrels, EIA reported.  Crude stocks at this location were last near this level in the week ending Apr. 24, 2009, when they reached 198.59 million.

Some analysts earlier this year questioned whether the crude moving out of Cushing to the Gulf would be consumed by refiners or lead to oil stocks simply being relocated. Certainly, the U.S.’ total commercial crude inventories continue to increase, rising a further 6.6 million barrels last week to reach 382.5 million.

Gasoline stocks, however, fell by 5.1 million barrels to 217.2 million, the EIA report showed, reflecting stronger demand for gasoline.

Brent North Sea crude, the European benchmark, moved back above $107 a barrel at midweek, supported by supply disruptions from Libya and Nigeria.

Brent crude for delivery in May on London’s ICE Futures Europe exchange finished at $107.03 a barrel on Mar. 26, some $1.18 up on last week’s near-six week low. Early this month, Brent had soared to its highest level since late December after Russia made its first move on Ukraine and triggered worries over possible supply disruptions from that country. Brent for April delivery on ICE Futures Europe had touched $112.38 a barrel on Mar. 3.

Meanwhile, gold futures fell to their lowest level in six weeks amid the prospect of higher U.S. interest rates which is dampening the investor appeal of the precious metal. The U.S. Federal Reserve last week said the central bank’s benchmark rate may rise about six months after the end of its monetary stimulus program. The Fed began to cut back its monthly bond-buying program last December and last week announced a third $10 billion cut to its monthly bond purchases.

Gold futures for June delivery on Comex in New York fell to $1,300.90 an ounce on Mar. 26, the lowest for a most-active contract since mid-February, before recovering slightly to settle at $1,303.40.

Nevertheless, gold still remains 8 percent up on where it started this year, boosted by worries about emerging markets and Russia’s intervention in Ukraine.

Palladium climbs to 31-month high

Palladium prices were pushed to their highest level since August 2011 on supply concerns from Russia, the biggest producer of the precious metal.  Fears that Russia may retaliate against U.S. and European Union sanctions by reducing exports of the metal pushed palladium futures for June to $802.45 an ounce on Comex on Mar. 24. This is the highest for a most-active contract since Aug.3, 2011. Prices had eased back a bit by midweek with June palladium finishing at $781.15 an ounce on Mar. 26, but many analysts believe this is only a temporary pause.

The price reaction of palladium and sister metal platinum to the nine-week strike at platinum mines in South Africa owned by Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin, largely has been muted, however. So far the market has remained well-supplied with PGMs because producers and fabricators built up above ground stocks ahead of the strike.

Government-brokered wage talks between the three producers and the country’s Association of Mineworkers Construction Union (AMCU) collapsed three weeks ago, with both sides far apart on the pay issues. This week brought a glimmer of hope when South Africa’s government mediator, the Commission for Conciliation, Mediation and Arbitration (CCMA) met with AMCU to restart talks aimed at ending the strike. CCMA in a statement said it would meet separately the three platinum companies. However, no date for that meeting has been set.

The three producers in a joint statement on Mar. 25 said they remain open to discussions with AMCU “within a reasonable settlement zone”, but noted no talks are currently underway.

To date the nine-week dispute has cost the three companies R10,397 billion ($969.6 million) in lost revenue, while employee earnings totalling R4,621 billion have been lost (as at 20.00 hrs GMT on Mar. 27) according to the Amplats, Implats and Lonmin website portal set up to provide updates on the 2014 wage negotiations.

In a separate development, Amplats last week announced the National Union of Metalworkers of South Africa (NUMSA) had accepted the terms of the company’s wage offer. The offer was accepted in December 2013 by the country’s National Union of Mineworkers (NUM) and the United Association of South Africa (UASA). NUMSA is the largest union at the company’s South African refineries and smelters, which to date have been unaffected by the mine strike.

Platinum futures for July delivery on Comex finished at $1,407.50 on Mar. 26, the lowest settlement for a most active contract since Feb. 12.

Brazilian rains cool arabica market

Arabica coffee futures continued their retreat from the two-year highs reached on Mar. 12 amid concern about crop-damage in the key-growing regions in southern Brazil following some of the worst drought conditions to hit the country.

The recent arrival of much-needed rainfall in the main coffee-growing regions has taken some of the heat out of the market, despite uncertainties over the size of the next harvest which gets underway in May-June. Firm projections for Brazil’s 2014/15 crop have yet to come in, but most market participants believe the crop has suffered irreversible damage.

May arabica coffee fell to a five-week low on ICE Futures U.S. in New York on Mar. 24, hitting 166.0 cents a pound, the weakest level since Feb. 20. By midweek, arabica had clawed back to settle at 175.13 cents. The May arabica contract had finished last week at 171.15 cents a pound, more than 38 cents down on the two-year high of 209.75 reached on Mar. 12.

Raw sugar prices also came under pressure amid the arrival of rains in southern Brazil. Raw sugar futures for May delivery on ICE Futures U.S. on Mar. 24 slipped to 16.68 cents a pound, its weakest level since Feb. 21, before recovering to settle at 16.80 cents. By midweek, the May ICE sugar contract had recovered some of the losses to close at 17.41 cents a pound. ICE May had finished last week at 16.83 cents.

Raw sugar had rallied to a four-month high of 18.47 cents on Mar. 6 at the height of the worries over the extent of drought damage to the cane crop.

Among other softs, U.S. cotton futures climbed to their highest level since early February 2012 with May cotton on ICE Futures U.S. touching 97.35 cents a pound on Mar. 26. May subsequently settled at 91.66 cents, down 2.45 cents on the previous day’s finish of 94.11 cents. The market is being supported by tightening global supplies of the fiber that are leading to worries that supply will fall short of demand.

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.