AFKI Commodities Report: Platinum Drops On South African Wage Talks

AFKI Commodities Report: Platinum Drops On South African Wage Talks

Platinum prices fell on hopes of an end to the 13-week mine strike in South Africa, but escalating tensions over Russia and Ukraine provided some support for palladium prices as well as for Brent crude and gold.

Among soft commodities, arabica coffee surged to a fresh 26-month high while sugar and cocoa were also higher.

A labor strike may be about to end that crippled platinum and palladium production for the past 13 weeks at mines of the world’s three largest platinum producers in South Africa. Wage talks between the three companies and South Africa’s Association of Mineworkers and Construction Union (Amcu) resumed this week after producers tabled a revised offer April 17.

Platinum and palladium prices dropped sharply April 21 on hopes that a wage deal could be reached. July platinum on the Comex division of the New York Mercantile Exchange (Nymex) dropped $28 to settle at $1,400.70 an ounce. Palladium for delivery in June shed $29.30 to close at $777.80.

Platinum recovered only slightly by midweek with the July contract on Comex settling at $1,403.90. Palladium found some support though on escalating tensions over Ukraine. The metal for June delivery moved up to a high of $805 an ounce following news April 24 that Russia planned to launch military exercises near its border with Ukraine after Kiev moved against pro-Russian separatists and NATO began exercises in Eastern Europe. June palladium had settled at $786 the previous day.

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The South Africa mine strike, which started Jan. 23, has cost the three affected producers – Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin – more than 14.6 billion rand ($998 million) in lost revenue to date, according to an industry website set up by the three companies to update 2014 wage negotiations.

Underlining the impact the industrial dispute is having on supply, Amplats said April 24 it lost 185,000 ounces of platinum production as a result of the strike. The company now expects its full-year platinum production to fall to approximately 2.1 million ounces, down from the previous forecast for 2014 of 2.3-to-2.4 million ounces. Amplats also warned of “potential for further downside revisions from the ongoing industrial action.”

Last week, South Africa’s Standard Bank estimated that about 670,000 ounces of platinum-group metals were lost industry wide as of March 31 as a result of the labor stoppage.

Gold benefited from escalating tensions over Ukraine with the precious metal’s safe-haven appeal reviving investment buying. Gold for June delivery touched a session high of $1,298.30 an ounce on Comex April 24. June gold on April 22 dipped as low as $1,277.60 an ounce — the weakest for the most-active contract in 10 weeks.

Brent tops $110 again on Russia worries

Brent crude remained supported by supply worries amid mounting tensions between Western countries and Russia over Ukraine. But a rise in U.S. crude stocks to record levels last week kept a cap on U.S. oil prices.

Brent crude for June delivery revisited $110 a barrel on London’s ICE Futures Europe exchange April 24, as the Russia-Ukraine situation caused increasing concern. In late trade, June Brent touched $110.62. The previous day the oil contract settled at $109.11.

But in the U.S., the benchmark West Texas Intermediate (WTI) contract was pulled down to a two-week low by the latest data from the government’s Energy Information Administration (EIA) which showed the country’s commercial crude inventories had risen to their highest level since the EIA began collecting data in 1978.

Crude for June delivery on Nymex settled at $101.44 a barrel April 23 after the EIA reported a 3.5-million barrel climb in stocks to 397.7 million barrels for the week ending April 18.

But as some analysts pointed out, U.S. crude inventories came near to their current level in late May 2013, when they reached 397.6 million barrels in the week ending May 24, according to EIA data. This week’s EIA figures also showed total oil products supplies averaging 18.2 million barrels per day in the four-week period to April 18 were 1.6 percent down on a year ago. Rising refinery capacity utilization rate also helped to assuage market concerns about U.S. oil supply builds. Refinery utilization was 91 percent in the week to April 18, up from 88.8 percent for the previous week and 83.5 percent a year ago, EIA data indicated.

Arabica surges to fresh 26-month high

Arabica coffee futures surged to a fresh 26-month peak this week, supported by the latest market player to revise its forecast for Brazil’s 2014-2015 production. Volcafe, the Switzerland-based coffee division of commodities group ED&F Man, released its first projection on Brazil’s crop following extreme heat and dry weather in the southern regions of the country in January and February. The trading house estimated 2014-2015 (April 1-March 31) output at 45.5 million 60-kilogram bags, down 10 percent from its previous projection of 50.7 million.

July arabica on New York’s ICE Futures U.S. exchange hit $2.157 a pound April 22, the highest for the second-month contract since mid-February 2012, before settling at $2.145 a pound. The following day, July arabica finished 0.8 percent lower at $2.127.

The second-position ICE arabica contract previously peaked at $2.1090 April 11 and on March 11 hit $2.890 a pound. Arabica futures prices are now running some 95 percent higher than where they begun 2014.

July robusta coffee on London’s NYSE Liffe exchange was also higher, up $14 to settle at $2,170 a tonne at midweek.

Meanwhile, raw sugar futures reached their highest settlement in three weeks on April 23 after Brazil’s sugar cane industry association, Unica, released its first official forecast of the 2014-2015 crop for the country’s key cane-growing regions. The industry body also raised concerns about crushing capacity. Brazil is the world’s biggest sugar exporter.

May raw sugar futures on ICE futures rose 2.5 percent to finish at 17.42 cents a pound at midweek, their highest close since March 31. August refined, or white, sugar on London’s NYSE Liffe exchange was also higher, gaining to settle at $479.80 a tonne. May raw sugar had finished last week at 16.87 cents a pound while Liffe white sugar for August closed on April 17 – just ahead of the Easter holidays – at $464.85 a tonne.

Unica said the country’s Center-South, hit by the extreme hot, dry weather earlier this year, accounts for around 90 percent of Brazilian production. The region is expected to produce 32.5 million tonnes of sugar in the 2014-2015 season which got underway at the beginning of April. If realized, this output would be a 5 percent reduction from 2013-2014 — at the low end of market expectations.

Unica also reported that 10 Brazilian cane mills are unlikely to re-open for 2014-2015 on account of financial difficulties. A further 30 mills also are in the process of restructuring while some others are experiencing fragile financial conditions.

Cocoa continued to trade not far below the two-and-a-half-year highs reached in March, supported by an expected global deficit. This despite disappointing grindings data, an indication of cocoa demand, from North America. The Washington, D.C.-based National Confectioners Association (NCA) said April 17 that North American cocoa grindings rose 1.03 percent in the first quarter to 2014 to 129,007 tonnes from the same period in 2013. NCA revised upwards its first-quarter 2013 data by 1,800 tonnes to 127,692 tonnes.

The modest gain in North America’s cocoa grind follows a similar modest gain – 0.4 percent – in European first-quarter cocoa processing figures by the European Cocoa Association (ECA) released earlier this month. Asian grindings for the first three months of this year were up 3.7 percent in sharp contrast to a 13.6 percent decline in Malaysian first-quarter grinding. However, this latter downturn reflected a move by the country’s processors to reduce output in an attempt to cut high cocoa powder stocks.

July cocoa on ICE Futures U.S. edged up $7.5 to settle at $3,011 a tonne April 23, some $16 off the two-and-a-half-year-year peak hit in March. ICE July closed at $3,000.50 April 17. Cocoa for delivery in the same month on London’s NYSE Liffe exchange was up £10 to settle at £1,882 a tonne at midweek –marginally above last week’s close.

ICE cotton futures moved lower at midweek on concerns about slowing demand following weak economic data from the U.S. and China. The most-active July contract on ICE Futures U.S. closed 0.61 cents down at 92.64 cents a pound.

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.