AFKI Commodities Report: Cocoa Hits 32-Month High; Platinum Nears 3-Year Peak

Cocoa futures climbed to their strongest level since September 2011 on a strong demand outlook. Arabica coffee and sugar slipped lower. Palladium rallied to a near three-year high and platinum futures touched a two-week low as wage talks to end the 18-week strike in South Africa have so far failed to reach a successful conclusion.

Cocoa futures continued their rally this week, supported by a strong demand outlook. July cocoa on New York’s ICE Futures U.S. touched $3,060 a tonne on May 27, the highest price for a second-position contract since early September 2011. In London, cocoa for delivery in September on NYSE Liffe hit £1,911 a tonne, a level also not seen since September 2011.

Cocoa’s strong rally over the past 12 months has been tempered recently by expectations of a larger-than-expected mid crop from West Africa, particularly from top grower Cộte d’Ivoire.

Forecasts of higher mid crop production follow plentiful rainfall across the region’s cocoa-growing areas. Early this month, futures prices touched their lowest since late January on the improved supply outlook. ICE’s second-position contract cocoa contract- at the time July – dipped to $2,849 a tonne on May 10 while Liffe July cocoa touched £1,771.

However, while output will be better than expected in West Africa, another poor crop is forecast for Indonesia, the world’s third biggest cocoa producer. A lack of investment and adverse weather conditions are seen has hampering the country’s cocoa crop.

But Macquarie Bank is among many analysts expecting cocoa to end 2014 strongly. “Growth in global grindings and a well sold origin market should underpin prices, ” the bank said in its latest Commodities Compendium published May 23.

The increasing risk of an El Niño weather event as early as July is also seen as a bullish influence on prices through the remainder of 2014. Macquarie pointed to the tendency for the major cocoa producing regions of West Africa and Indonesia to see “an underperformance” during an El Niño, as dryness normally spreads through both regions.

Meanwhile, arabica coffee futures continue to head south as the market assesses crop conditions in top producer Brazil. ICE arabica futures for July delivery touched a two-month low of $1.708 a pound on May 27 before settling at $1.7615. By close at midweek, July arabica clawed back to $1.766 a pound.

Arabica trading has been volatile since the second-position contract hit a 26-month high late last month on concerns about the extent of the damage to Brazil’s 2014-2015 (April 1-March 31) crop as a result of extreme prolonged hot, dry weather in southern areas of the country – including the major coffee producing states of Minas Gerais and São Paulo – during January and February. Brazil is the biggest producer and exporter of arabica.

But talk that the extent of the drought-damage to the country’s 2014-2015 crop may not be as great as initially feared has pressured futures prices in recent weeks. The country’s arabica harvest starts to gather pace in June and it will be only near the end of the harvest in about September that the extent of the weather-damage to the crop will become clear.

Robusta coffee for July delivery on NYSE Liffe on May 27 touched a low of $1,903 a tonne, the weakest for the second-month contract since February, before settling at $1,907. The following day, July robusta finished $1 higher at $1,908 a tonne. Vietnam, the top producer and exporter of the robusta variety of coffee, has seen a big crop with March exports at a reported record 2.9 million 60-kg bags.

Raw sugar futures also headed lower, pressured by big surpluses of the sweetener around the globe. The ICE July raw sugar contract touched a one-month low of 16.95 cents a pound on May 27 after Brazil’s sugar cane industry association, Unica, reported harvesting in the country’s main sugar-growing region, the Center-South, was gathering pace after a slow start. By midweek, the July contract settled at 17.15 cents a pound, clawing back some of the previous day’s losses.

Worries about the possible damage to Brazil’s sugar crop as a result of the extraordinary weather conditions in the country’s main southern cane-growing areas earlier this year took raw sugar futures on ICE to a four-month high of 18.47 cents on Mar. 6. Earlier this month, the sweetener gained some renewed upward traction. July raw sugar on ICE revisited 18.28 cents a pound on May 14 after Unica reported the lower sugar output for the Center-South region in the 2014-2015 sugar year through to April 30.

White, or refined, sugar on NYSE Liffe was also lower, finishing at $467.10 a tonne on May 28.

Palladium nears 3-year high

Palladium continued its rally this week while platinum futures touched a two-week low as the mine strike in South Africa dragged on into its nineteenth week. South Africa’s newly appointed Mineral Resources Minister, Ngoako Ramathlodi , has stepped in now in an effort to find a solution that has cost the three affected producers more than R20 billion ($1.9 billion) in lost revenue and employees close to R9 billion in lost earnings.

The minister has set up an intergovernmental technical team, with representatives from the departments of Mineral Resources, Labour and National Treasury, to support the Labour Court mediated talks between Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin and the Association of Mineworkers and Construction Union (Amcu)

The Labour Court-mediated talks stalled on May 28 but resumed May 29 with the help of the new intergovernmental technical team .

Palladium for September delivery touched $844.65 an ounce on the Comex division of New York’s Mercantile Exchange (Nymex) on May 28, the highest price for an actively traded contract (currently September) since Aug 1, 2011, before settling at $840.75. Platinum for July delivery on Comex, meanwhile, settled at $1,462.70 an ounce after touching a two-week low of $1,442.70 earlier in the day.

The platinum group metals’ (pgms) response to the South African strike which has seen a large part of the three producers’ mining operations halted since Jan. 23 has been largely muted. Much of the upward rally in palladium futures, which have gained more than 12 percent since the start of the labour dispute, has been due to worries over a potential disruption to Russian export flows of the precious metal amid geopolitical tensions over Russia’s involvement in Ukraine since early March.

Demand for the metal is expected to exceed supplies for a third straight year in 2014, with demand forecast to exceed supply by some 1.6 million ounces in 2014, up from a deficit of 371,000 ounces last year according to Johnson Matthey. South Africa and Russia between them accounted for close to 80 percent of world palladium supply last year.

Among other precious metals, gold fell to its lowest in 18-weeks on May 28 as investors reduced their holdings of the precious metal amid easing tensions over Ukraine and upbeat U.S. economic data.

Gold for June delivery on Comex settled at $1,259.30 an ounce, down $6.20 on the day and the lowest level for a most actively traded contract since Feb.7.

In recent weeks, the precious metal had found some support on worries over Russia’s involvement in Ukraine but Russia’s willingness to work with the newly elected Ukraine government has diminished for the time being gold’s safe-haven appeal for investors. The precious metal typically benefits at times of geopolitical uncertainty.

U.S. crude finds support in strong gasoline demand

Meanwhile, U.S. crude futures traded lower after topping $104 a barrel last week. West Texas Intermediate (WTI) for July delivery on Nymex hovered near a one-week low at midweek as the market anticipated a rise in U.S. crude inventories. But the U.S. benchmark subsequently gained ground after the U.S. Energy Information Administration (EIA) weekly oil status report showed strong demand for fuel. Last week, the EIA had confounded the market, reporting a 7.2-million barrel decline in crude stocks.

WTI for July delivery fell to $102.64 a barrel on May 28, the lowest since May 20, before settling at $102.72, down $1.39 on the day. But July WTI moved up to trade at S103.93 a barrel shortly after the EIA report was released on May 29, one day later than usual due to the Memorial Day holiday in the U.S. on May 26.

The government energy department data showed a 1.7-million barrel rise in the country’s commercial crude stocks for the week ended May 23, higher than was expected by the market. But motor gasoline product supplied over the four weeks to May 23 averaged 9.1 million barrels per day, a 5.4 percent increase on the same period last year. Total petroleum products supplied over the same four-week period were also 2.2 percent higher year-on-year at an average 19.1 million barrels a day.

Brent North Sea crude futures, the international benchmark, continue to be supported by the lack of supply from Libya and political tensions surrounding Ukraine.   After moving up above $110 a barrel last week, July Brent on London’s ICE Futures Europe slipped below this level at midweek to close at $109.81 a barrel. But July Brent reclaimed $110 the following day to close at $110.10.

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.