AFKI Commodities Report: Fresh South African violence Push Up Platinum

Platinum and sister metal palladium spiked higher on supply worries triggered by further violence in South Africa’s platinum belt. U.S. crude oil futures moved up on a sharp fall in the country’s inventories while Brent found support on the escalating conflict in Libya. Among soft commodities, arabica coffee futures hit a six-week low on continuing Brazilian output uncertainties.

Palladium prices climbed further while platinum prices edged higher as the four-month miners’ strike in South Africa dragged on and renewed violence erupted. Last week, there were violent clashes in the country’s platinum belt between striking miners trying to prevent others returning to work, leading to four fatalities. At the time of writing, there were reports coming in of another mine worker death following renewed violence at the mines.

Fresh hope of a resolution to end the strike that has cost the three affected producers more than R19.1 billion ($1.8 billion) in lost revenue since 70,000 workers downed tools on Jan. 23 emerged early this week when the country’s Labour Court intervened.

The Labour Court is mediating fresh talks between Anglo American Platinum (Amplats), Impala Platinum (Implats), and Lonmin and the Association of Mineworkers and Construction Union (Amcu) in a bid to end the stalemate which has cost the producers more than R19.1 billion ($1.8 billion) in lost revenue. The mediation process which is set to last up to three days began May 21.

The strike has hit 40 percent of global platinum supply but prices of the pgm until recent days had been largely unmoved by the labour dispute given that the industry had managed to build up stocks ahead of the strike. But prices started to spike upwards since last week when they hit two-month highs amid the erupting violence.

On May 22, July platinum on the Comex division of the New York Mercantile Exchange (Nymex) touched $1,496.95 an ounce, its highest since early September 2013.  The previous day the July contract had finished at $1,474.90 an ounce just a few dollars off the two-month high of $1,485.70 reached last week.

Analysts said the escalating violence is fuelling worries over supplies of both platinum and sister metal palladium.

Palladium continues to track upwards, posting fresh three-year peaks on Comex on May 21. South Africa is an important supplier of palladium to world markets, accounting for around 37 percent of global supply last year.

But until recently, it had been the tensions surrounding Russia’s involvement in Ukraine and worries over a potential disruption to supplies of palladium from the Russian Federation that had been the key factor in pushing palladium prices up to their highest since March 2011.

The launch of two new physical palladium-backed exchange traded funds in Johannesburg in March has also provided a big boost with holdings hitting record levels this week.

South Africa and Russia accounted for near 80 percent of world palladium supply last year, according to data from Johnson Matthey. In a report this week, the company said it expects the global palladium shortfall to increase to 1.61 million ounces this year from 371,000 ounces in 2013, marking the eighth year of deficit. Johnson Matthey expects the platinum deficit to widen to 1.218 million ounces in 2014.

June palladium touched $834.45 an ounce on Comex on May 21 , the highest level since March 2011, before closing at $830.45. This marked a $15 gain on last week’s finish at $815 an ounce. The pgm metal recorded an all-time high of $865 an ounce in February 2011.

Gold, meanwhile, fell back below $1,300 an ounce this week. In recent weeks, the precious metal has found some support on escalating tensions over Ukraine. A report from the World Gold Council on May 20 showed physical gold demand from top consumers China and India fell in the first quarter from the same period in 2013.

Gold futures for June delivery on Comex finished at $1,288.10 an ounce on May 21, down $1.2 on last week’s close at $1,293.40 an ounce.

U.S. tops $104, Brent hits $110 a barrel

U.S. crude oil futures topped $104 a barrel at midweek, their highest in a month, after the country’s Energy Information Administration (EIA) confounded market expectations on weekly crude inventories. The EIA reported a 7.2-million barrel decline in U.S. commercial crude stocks to 391.3 million barrels for the week ended May 16, far more than the modest fall the market had been expecting.

Supporting the decline in crude inventories, the government department said last week it had seen a large drop in U.S. crude oil imports .

Imports last week averaged about 6.5 million barrels a day, down 658,000 barrels a day on the previous week, according to EIA data. Over the past four weeks, crude oil imports into the U.S. averaged 7 million barrels per day, 11.3 percent below the same four-week period last year, the energy body said.

West Texas Intermediate (WTI), the U.S. crude benchmark, for July delivery on Nymex finished at $104.07 a barrel on May 21, $1.84 up on the day and a $2.48 gain on where it closed last week.

Brent crude futures also continued to move higher, supported by the escalating conflict in Libya and fears the country is descending into civil war. The escalating political and civil instability has raised questions about Libya’s ability to export oil. Oil exports have fallen from some 1.4 million barrels a day in July 2013 to around 230,000 barrels a day in March, according to Bloomberg.

Oil shipments from Libya had been expected to rise after rebels surrendered control of the eastern ports of Hariga and Zueitina to the government in April following an eight-month blockade. A deal had also been under negotiation for the remaining two terminals of Ras Lanuf and Es Sider held by the rebel forces. Analysts now believe Libya will struggle to raise export volumes given the worsening situation there.

Brent for July delivery on London-based ICE Futures Europe climbed above $110 on May 21 to settle at $110.55 a barrel. This represented a 3.3 percent gain over the past fortnight.

Arabica coffee hits six-week low

Among soft commodities, arabica coffee futures extended recent losses, touching a six-week low on May 21 as the markets waits for a clearer picture to emerge on the extent of crop damage due to drought in top producer and exporter Brazil.

There is talk that the extent of the losses to the country’s 2014-2015 (April 1-March 31) crop may not be as extreme as initially feared after key coffee-growing areas in the southern states of Minas Gerais and São Paulo suffered record hot, dry weather conditions in January and February.

Arabica coffee for September delivery on New York’s ICE Futures U.S. exchange slipped to a six-week low of $1.809 a pound on May 21. The front-month contract July, meanwhile, has lost around 18 percent of its value since reaching a 26-month peak of $2.1892 a pound on April 23.

ICE raw sugar futures were trading lower again after rallying back above 18 cents a pound last week after Brazil’s sugarcane industry association, Unica, reported production of the sweetener fell 13.3 percent in the 2014-2015 sugar year to date (to April 30) in the Center-South region, the country’s main cane-growing area.

But futures prices came under renewed pressure this week on weak physical demand for the sweetener with the July raw sugar contract on ICE Futures U.S. settling at 17.46 a pound on May 21, down 0.41 cents on last week’s finish at 17.87 cents.

White, or refined, sugar was also lower, with August white sugar settling at $473.30 a tonne on London’s NYSE Liffe on May 21, down $15.05 on last week’s close at $488.35.

Cocoa futures continued to recover from the three-month lows touched earlier this month. At midweek, July cocoa on ICE Futures U.S. hit a three-week high of $2,996 a tonne before finishing at $2,012. The July contract had slipped to $2,849 a tonne on May 8, the lowest for the second-position contract since late January, amid an improving supply outlook in West Africa, particularly for top grower Cộte d’Ivoire.

Meanwhile, July cocoa on NYSE Liffe edged up to reach a one-month high of £1,875 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.