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AFKI Commodities Report: Palladium Hits New 31-month High On Supply Worries

AFKI Commodities Report: Palladium Hits New 31-month High On Supply Worries

Both palladium and Brent crude were higher on escalating Russia-Ukraine tensions, while burgeoning domestic crude stocks weighed on U.S. oil prices. Among the soft commodities, arabica coffee futures were see-sawing on Brazilian crop concerns.

Palladium futures rose to their highest level since August 2011 early this week on the escalating tensions surrounding Russia’s involvement in eastern Ukraine.  Concerns about potential disruptions to Russian supplies of the metal have intensified amid the stand-off between the Ukraine and Russian governments as pro-Russian protesters occupy government buildings in eastern Ukraine. There are fears that further U.S. sanctions against Russia could potentially impact Russian palladium exports, either directly or as a result of Russian retaliation to sanctions. Last year, the Russian Federation produced around 38-39 percent of the world’s palladium.

Palladium for June delivery touched $816.30 ounce on the Comex division of the New York Mercantile Exchange (Nymex) on Apr. 14, marking its highest level since August 2011. By midweek, June palladium had eased back to settle at $802.30 an ounce, down $9.2 on the day.

U.S. palladium futures reached $802.45 an ounce on Mar. 24 – at the time the most-active contract’s strongest level since Aug. 3, 2011 – after Russia sent troops into eastern Ukraine.

The renewed Russian supply worries come amid a long-running labor strike at platinum mines owned by the world’s three largest producers in South Africa.  The dispute over wages is now entering its twelfth week with no sign of a resolution in sight.  The walkout, which began on Jan. 23, has cost the three affected producers, Anglo American Platinum, Impala Platinum and Lonmin,  around 9,900 ounces of platinum daily and some 5,000 ounces of palladium daily in lost output.

However, platinum price reaction to the protracted strike remains largely muted. July platinum on Comex finished at $1,437.80 an ounce on Apr. 16, down $6.8 on the day. It closed last week at $1,462.60 an ounce.

South Africa’s Standard Bank estimates that about 670 000 ounces of platinum-group metals (pgms) had been lost by the end of March as a result of the South African mine strike. In its latest quarterly commodities report released this week, the bank said the lost production comprised about 400,000 ounces of platinum and 225,000 ounces of palladium as well as 54,000 ounces of rhodium.

The bank also forecast an 815,000-ounce platinum supply deficit for full-year 2014 and a palladium deficit of more than 1.5 million ounces.

Even so, Standard Bank’s head of commodities research Walter de Wet does not expect platinum prices to rise materially in 2014 as a whole on account of high levels of above-ground inventories of the two pgms.

Gold futures slipped back below $1,300 an ounce as the safe-haven appeal of the precious metal continues to dilute amid higher equities markets and further signs of U.S. economic recovery, and despite the geopolitical concerns over Ukraine.

Concerns over weakening physical demand from leading buyer China also weighed on sentiment. The World Gold Council in a report on Apr. 15 said gold demand in China is likely to see “consolidation” this year, as a result of the country’s economic slowdown and constrained credit markets. China’s gold demand in 2013 reached a record level and saw the country become the world’s largest gold market, replacing India as the top buyer.

However, the gold council’s report ‘China’s gold market: progress and prospects’ also said the succeeding years are likely to see sustained growth.  Private sector demand for gold in China, according to the report, looks set to increase from the current level of 1,132 tonnes per year (based on Thomson Reuters GFMS) to at least 1,350 tonnes (Precious Metals Insights) by 2017.

June gold futures on Comex touched $1,296.70 an ounce during early trading on Apr. 17 after settling at $1,303.50 the previous day and $24 down on Apr. 15’s close.  The most active contract was last below $1,300 an ounce on Apr. 8.

Comex gold prices have been under heavy selling pressure in recent weeks amid upbeat U.S. economic data.

Russia-Ukraine worries support Brent crude

Brent crude oil touched $110 a barrel on Apr. 16 as tensions continued to mount in Ukraine but U.S. oil prices were weighed down by a further large build in domestic inventories.

Brent crude for June delivery reached $110.20 a barrel before settling at $109.60 on the ICE Futures Europe exchange in London at midweek. The market was focused  largely on the stand-off between Ukrainian government forces and pro-Russian militia in eastern Ukraine. Analysts say the crisis in Ukraine is unlikely to have a direct impact on global oil supplies, however.

The Apr. 16 June settlement was Brent’s highest close since Mar. 3, The May contract expired on Apr. 15.

Brent oil prices are also being supported by skepticism that oil flows from Libya will resume quickly to normal levels, despite rebels surrendering control of the eastern ports of Hariga and Zueitina to the government. A deal also is under negotiation for the remaining two terminals of Ras Lanuf and Es Sider. Reuters reported the start of a tanker loading at Hariga at midweek, marking the first loading in almost nine months. But the Ras Lanuf and Es Sider ports remain in rebel hands while negotiations continue.

Earlier, the latest data from China, the world’s second largest oil consumer, provided further confirmation of slowing economic growth in the country. The news put some pressure on oil prices but was largely outweighed as far as the Brent market was concerned by worries over Ukraine. China reported that its gross domestic product grew 7.4 percent in the first quarter, the slowest annual growth since the third quarter of 2012. However, the figure was slightly better than market forecasts which had anticipated a 7.3 percent rise.

But increasing oil supplies in the U.S. have weighed on Nymex crude futures prices with the May benchmark West Texas Intermediate (WTI) closing at $103.76 a barrel after the government’s Energy Information Administration (EIA) reported a 10-million barrel rise in the country’s commercial crude stocks. The stock build was far higher than the 2.3 million barrel increase expected by the market.  May WTI had earlier touched a high of $104.79 a barrel before the release of the EIA report. The May WTI contract expired on Apr.16.

Arabica coffee hits 26-month high, then slumps

Among soft commodities, arabica coffee futures have experienced a great deal of volatility amid continuing uncertainty about the extent of the damage to top producer Brazil’s 2014/15 crop (Apr. 1-Mar. 31) following extreme dry weather and high temperatures in the southern areas of the country in January and February.

July arabica on New York’s ICE Futures U.S. exchange hit 202.5 cents a pound on Apr. 16 before slumping to 191.80 cents a pound during trading on Apr. 17. On Apr. 11, the then second-month contract (May) had hit 210.90 cents on Apr. 11, marking its highest point since February 2012. This volatility is likely to continue until the full extent of the crop damage is known, analysts say.

ICE raw sugar futures slipped to their lowest settlement in around two months on Apr. 14 as weak demand prompted selling. Raw sugar for May delivery on ICE Futures U.S. finished at 16.58 a pound, some 25 cents down on last week’s close. By midweek, June raw sugar had recovered a tad to settle at 16.89 a pound.

May raw sugar futures reached a four-month peak of 18.47 cents a pound on Mar. 6, driven up on concerns about the impact of prolonged dry weather in Brazil’s Center-South, the country’s main cane-growing area.  Brazil’s sugar cane industry association, Unica, is expected to release its first full estimate for the 2014/15 sugar cane harvest for the Center-South  on Apr. 23.

Despite expectations of some reduction in the size of the next Brazilian crop, global exportable sugar surpluses are seen as ample and should provide a buffer to any production losses, analysts say.

In late January, the then most-active contract – March – had touched 14.97 cents a pound, its weakest level since June 2010.

Cocoa found support this week on a 3.7 percent rise in Asia’s first quarter cocoa grindings, an indicator of demand for the key chocolate-making ingredient. The Singapore-based Cocoa Association of Asia (CAA) on Apr. 16 reported the 3.7 percent increase to 159,617 tonnes for the three months ended Mar. 31, 2014 compared with the same period last year.

The firm Asia data went some way to offset a 13.6 percent fall in Malaysia’s first quarter cocoa grind, which the Malaysian Cocoa Board (MCB) reported earlier in the week. MCB revealed the country’s cocoa grindings fell 13.6 percent to 62,359 tonnes in the first quarter of 2014 against the same prior year quarter as processors reduced output in a move to cut high stocks of cocoa powder.

First quarter European cocoa grindings had disappointed the market last week when the Brussels-based European Cocoa Association (ECA) reported that European cocoa grindings for the first three months of 2014 were up just 0.4 percent year-on-year at 340,735 tonnes, a much smaller increase than the three percent rise the market had been expecting.

North American first quarter grindings data are due to be released by the National Confectioners Association in Washington, DC at 16.00 hrs EDT. on Apr. 17.  Market estimates expect the data to show a 1.2 percent year-on-year rise.

May cocoa futures on ICE finished at $2,975.50 a tonne at midweek, down $34 from Apr. 14’s close of $3,009.50.

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.