No Help From Commodities

Sydney, Oct 22, 2007 (ABN Newswire) - There won't be any help to markets or investors today from commodity prices. The impact of Friday's fall on Wall Street is way too strong. Oil traders must have sensed that: the price of the current Nymex contract fell in New York to $US88.60 a barrel at the close Saturday morning (Australian time) after touching a new all time high of $US90.07 a barrel earlier in Asian trading. November West Texas Intermediate (a light, sweet crude) fell 87 USc lower to $US88.60 a barrel. Crude prices finished at a record high four times over last week, including Thursday when prices ended at a new record close of $US89.74 a barrel. The major driver was the weakness in the US dollar thanks to the worsening housing crisis and growing concerns about credit markets and another cut by the Fed at the end of the month. The dollar and any weakness in credit markets (which is driving yet another huge rally in US Government securities as investors move to the sidelines), will continue to drive the price of oil and other commodities.   The other commodity to have directly benefited from the greenback's sag since the middle of last month is gold and it had another solid week last week, despite falling from another 27 year high on Friday on those uncertainties which undermined the markets. But traders played safe, with the fall not all that significant. Comex December gold eased 30USc to $US768.40 an ounce, down from the highest level for a most-active contract since early 1980, the day after the price reached a record $US873. Gold actually hit $US776.90 in trading. The price of gold still gained 1.9% last week. Gold is up 20% this year after gaining 23% in 2006. Silver fell 16.8 USc to US$13.635 an ounce. The metal has gained 5.4% this year.   Copper rose on Friday on the weaker US dollar with December metal finishing one cent higher in New York on $US3.5515 a pound. But the sheen went off the metal last week: it shed 2.8%, the biggest fall in six weeks as world stocks rose. The metal is still up 1.2% for the year. (But that's lower in Aussie dollars.) London Metal Exchange stocks rose 7.8% last week to 148,950 tonnes, the highest level since May. And stock in China also rose with inventories monitored by the Shanghai Futures Exchange rising 9.1% to 63,895 tonnes last week. That's the highest since late August. Three month LME copper climbed $US10 to $US7,870 a tonne, or $US3.57 a pound.   While metals were mixed to weaker, that old pretender sugar showed a renewed burst of life. World sugar prices hit a two month high on higher oil prices which now seem to have a strengthening impact on the price of the sweetener. That seems to be  a reflection of how the rising crude price improves the appeal of ethanol made from cane in Brazil, and in turn suggests to traders that more sugar might be withdrawn from the sweetener pool and diverted to energy. Brazil is the world's biggest grower and supplier of sugar in the world and the biggest producer of ethanol made from cane as well. That push by oil over $US90 a barrel got the traders thinking along those lines, especially as mills in Brazil's center-south region, which account for 85% of the country's output, produced 5% less sugar in the six months to September as growing demand from ethanol producers soaked up supplies. March sugar futures rose 0.12USc to 10.21 USc a pound on ICE Futures US (formerly known as the New York Board of Trade), the highest price since the first week of August. The price rose 4.2% last week, which should put a faint smile on the faces of CSR shareholders. Still world prices are down 13% so far in 2007, which is a more important price direction. According to a report by leading brokers, F.O. Licht last week world sugar output will rise 1.9% to 170 million tonnes over the next year.   And world wheat prices jumped the limit of 30 USc to end at $US8.55 a bushel in Chicago on Friday after Ukraine cancelled restrictions on grain and oilseed exports from next month. Ukraine is a top 10 grain exporter and it has been restricting exports because of a poor crop last year and a desire to try and help put a lid on local food prices. But the Government claims that with world prices at or near record levels, there's no need for the clamps. Others point out that the Ukraine also wants to join the World Trade Organisation and the clamps would not comply with WTO rules. Restrictions on grain exports were imposed in 2006 to avoid a domestic shortage. Ukraine will export as much as 4 million tonnes of wheat over the next year. The total grain harvest is estimated at 28 million tonnes, including 14.5 million tonnes of wheat. That would make it a bigger producer than Australia this year, but its exports would be less than 50% our drought hit figure of around 9.5 million tonnes (according to the USDA). Wheat exports from Ukraine fell by more than half to 2.8 million metric tonnes because of the drought, from 2005's 6.5 million tonnes.

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