AFKInsider Commodities Report: U.S. Fed, China Concerns Hurt Commodities

AFKInsider Commodities Report: U.S. Fed, China Concerns Hurt Commodities

Prices of many industrial commodities declined over the past week as investors sold off their holdings on concerns that the U.S. Federal Reserve would scale back its economic stimulus measures in the next few months amid an improving U.S. economy.

Worries that a liquidity squeeze in China would slow further that country’s economy also weighed heavily on markets.

Industrial metals such as copper regained some of their lost ground following comments by the People’s Bank of China in a Tuesday (June 25) news conference aimed at allaying market concerns about tightening liquidity. China is a major consumer of base metals.

Copper rebounded off a three-year low reached on Monday (June 24), with the three-month price on the London Metal Exchange (LME) climbing to $6,765 a tonne by Tuesday’s (June 25) close. LME three-month copper had touched $6,613 a tonne on Monday, its lowest level since July 2010. Concerns about the impact of China’s economic slowdown and weak manufacturing data on the country’s demand for copper and other base metals have been taking their toll on prices in recent weeks. LME copper inventories – a reflection of demand – have more than doubled so far this year and reached a 10-year high of 678,225 tonnes early this week. Three-month copper had retreated to $6,715 a tonne by close on Wednesday (June 26).

Oil prices also fell again this week amid concerns that the credit crunch in China would hit demand in the world’s second-largest oil-consuming country, extending last week’s losses. Brent North Sea crude for August delivery on ICE Futures Europe slipped below $100 a barrel for the first time since June 3 on Monday (June 24), touching $99.67 before settling at $100.63. New York Mercantile Exchange (Nymex) West Texas Intermediate (WTI) crude for August delivery tumbled to $92.67 a barrel, the lowest since June 4, before rallying to $95.18.

Worries about tightness in the U.S. crude market helped U.S. crude bounce off the lows after Canadian pipeline operator Enbridge shut down three major pipelines in Canada’s main producing province, Alberta, over the weekend following flood-related damage to one of the pipelines. Enbridge has since restored service to one of the three affected pipelines. Brent crude for August delivery was trading marginally lower at midweek – at $101.26 a barrel – while the Nymex August crude price was marginally higher at $95.32.

Gold remained under pressure, falling to its lowest level in nearly three years this week amid renewed strength for the U.S. dollar and a raft of strong U.S. economic data which further fueled speculation the Federal Reserve would scale down its monetary easing in the next few months. Spot gold touched $1,223.54 an ounce on Wednesday (June 26), its lowest since August 2010. The precious metal is down now more than 10 percent, or around $160 an ounce since the start of last week, and by about a quarter on where it started the year.

Unlike gold, platinum and its sister metal palladium, have far greater industrial uses, and their prices have benefited from strong demand from the auto sector as well as supply concerns. Earlier this month, spot platinum reached a six-week high of $1.531.50 an ounce (on June 6) amid worries of growing unrest in the South African mining industry. Even so, neither metal has been totally immune to recent negative market influences, with spot platinum falling to $1,329 and spot palladium to $652 an ounce on Wednesday (June 26), some 7 percent and 8 percent lower respectively than where they were a week earlier.

In contrast, some of the agricultural commodities managed some small gains this week. Raw sugar futures prices climbed to their highest level in six weeks on Tuesday (June 25) on worries that wet weather will curb yields in Brazil, sugar’s biggest producing and exporting country. The weather-related uncertainty added to ongoing market concerns that growers in the country’s center south, Brazil’s main growing region for sugar, will use more cane to make ethanol on account of declining sugar prices.

Raw sugar for October delivery on ICE Futures U.S. in New York hit a high of 17.48 U.S. cents a pound during Tuesday’s trading, the strongest since May 13. Sugar has been a negative performer in recent weeks as fears of a global supply glut weighed on the market. On June 13, sugar prices had fallen to a three-year low of 16.17 cents.

Among other soft commodities, arabica coffee futures were marginally higher this week after tumbling to a four-year low June 21. U.S. economic stimulus worries coupled with continuing concerns over ample global supplies had pushed prices lower with the September contract on ICE Futures U.S. touching $1.1710 a pound, the lowest level for the second month contract since July 2009.

Speculation that rain in some of Brazil’s main coffee-growing areas will slow the harvest helped lift arabica futures prices this week, with the September ICE Futures U.S. contract up at $1.1910 a pound at midweek.

Meanwhile, cocoa futures on both ICE and Liffe dropped to their lowest since April 5 on Monday (June 24) as funds liquidated long positions. Prices were also pressured by improved weather in West Africa. Cocoa futures for September delivery on ICE Futures U.S. sunk to $2,135 a tonne at one point on Monday (June 24) before closing the day at $2,150. Liffe September cocoa was also down, touching £1,420 a tonne, the lowest level for the second month contract since early March, before ending the day at £1,428. Liffe cocoa subsequently found support from the weak British pound, moving up to £1,454 a tonne on Wednesday (June 26) while ICE Futures cocoa was little changed at midweek.

Cotton futures was another negative performer this week, largely on account of the continuing concerns about slowing demand from China, which is the world’s biggest consumer of cotton. Cotton for December delivery slumped to 83.11 cents a pound on ICE Futures U.S. at one point on Monday (June 24), the lowest level for a most-active contract since June 6, before rebounding a tad by midweek to 83.40 cents.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author, Lynda Davies, can accept no responsibility for any errors or any consequence arising from them.