Commodities Mixed, Gold Demand Eases

Sydney, Feb 18, 2008 (ABN Newswire) - A solid week for commodities, despite worried about the health of the US and European economies: the dislocation to China's economy from the severe weather of a week or so ago is still rumbling through commodity markets.

It is impacting metals and the likes of wheat, cooking oils and other soft commodities, as is hedge fund and other financial speculation as investment banks look for new sources of trading profits after their structured finance and mortgage loans businesses have collapsed.
Gold fell Friday and that capped the first weekly loss for a month because of the poor US consumer confidence figures for February on Friday.

Even though platinum hit new records and remained above $US2,000 an ounce because of production problems in South Africa, gold has failed to kick much higher.

Not helping gold was the stark reality of high prices. Despite what the bulls might say, consumers don't like high gold prices and demand from the jewellery trade plunged 17% in the fourth quarter.

The World Gold Council said Friday that high and volatile gold prices had a major impact on the fourth quarter with identifiable demand falling by 17% in tonnage terms from year-earlier levels.

Gold prices peaked in late January at $US942.20 an ounce and has remained above $US900 an ounce off and on for several weeks.

"This trend was most keenly felt in India, the world's largest and also most price sensitive gold market, where Q4 demand fell 64% on year earlier levels following 40% growth in the first three quarters.

"The US was also negatively impacted with a combination of a weak economy, poor retail environment and record prices denting jewellery demand which for 2007 as a whole stood 14% down on 2006 figures.

"Continued volatility at record high prices is posing challenges to the jewellery industry," the Council said. .

April gold futures on Comex fell $US4.70 to $US906.10 an ounce on Friday. The metal lost 1.8% last week.



March silver futures for March fell 13.7 cents to $17.118 an ounce. The metal is up 15% this year.

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Platinum prices though continued to rise Friday, extending a rally to record highs in New York after Anglo Platinum, the world's biggest producer of the metal, reported damage to one of its smelters in South Africa. A similar precious metal, palladium also rose.

The damage will take up to six weeks to repair. Anglo Platinum said early last week that it expected production to fall for a second year in 2008 but so far hasn't cut its new forecast because of the latest problem.

The South African industry is the world's largest, which the nearby Zimbabwe industry is stricken by that country's economic implosion.

South Africa's industry has been hit by safety problems and a shortage of electricity: that has also hit the operations in that country of BHP Billiton and Rio Tinto. Production of platinum is falling as a result, just as car demand for the metal in exhaust systems is rising because of the boom in new car sales in China and India.

April platinum futures rose $US57.80, or almost 3% Friday to $US2,063.70 an ounce on the New York Mercantile Exchange, after reaching an all time high of $US2,079.90. The futures price rose 10% in New York last week.

The price topped the $US2000 mark and closed above that level for the first time last Thursday.

Copper had its best day last week on Friday after stocks monitored by the London Metal Exchange fell nearly 10% over the week, the biggest fall since October 2005.

LME stocks dropped 16,100 tonnes over the week to 150,650 tonnes. Supplies have slid 24% this year, helping to drive the copper price up 16%: a repeat of what happened last year, although 2008 has been affected by the impact of the severe winter in China.

Comex May copper futures rose 3.85 US cents to $US3.539 a pound on Friday. The most-active contract was unchanged though last week after rising 11% the week before.

The China angle was confirmed by an increase in supplies in China which could be a signal that the LME stocks are merely being switched from London to China: Stocks monitored by the Shanghai Futures Exchange jumped 54% to 31,188 tonnes, a report on Friday revealed.
That could be a sign of Chinese consumers buying stocks in early ahead of an expected price rise later in the year, or merely restocking rather than new demand. Certainly consumers in Europe and the US are not reported as being big buyers at the moment.

LME three months copper rose $US50, to $US7,730 a tonne, or $US3.51 a pound).

Sugar continued to have an unexpected rally.

It has been probably the worst performing commodity in recent years, falling rather than rising, and yet it rose for the scone week last week, hitting an 18-month high on concern that freezing temperatures in China, the third- largest producer, may have harmed cane crops, and heavy rains in Queensland may have damaged the crop there, especially around Mackay.

As well, traders reported increase interest from financial investors attracted by the commodities recent strength.

May sugar futures rose 1% to 13.77 US cents a pound in New York on Friday: the price had earlier reached 14.14 US cents a pound, the highest for a most-active contract since August 9, 2006 when the price was on the way down from peaking in the early months of that year.



Sugar rose 8.3% last week and the New York price is up 27% so far this year and is now the best performing major commodity, toppling wheat..

Oil prices were little changed in New York on Friday.

March crude oil futures rose 4 cents to settle at $US95.50 a barrel on the New York Mercantile Exchange. Futures had earlier reached $US96.67, the highest intraday price since January 9. Prices rose 4.1% last week and are up 65% on a year ago.

Brent crude for April settlement dropped 53 US cents to close at $US in London

New York crude futures prices are down 4.6% since reaching a record $US100.09 a barrel on January 3.

OPEC lowered its estimate of first-quarter demand by 130,000 barrels a day to 87.19 million barrels a day on Friday and the overall 2008 estimate was cut 80,000 barrels a day to 86.99 million barrels.

Don't expect any production increases with that forecast from OPEC when they meet on March 5, or in subsequent meetings.

Demand is projected to rise 1.4%in 2008, down from the 1.5% forecast in last month's report.

Cocoa extended its rally to the highest price since June 1984 on speculation from financial investors that a drought in the Ivory Coast, the largest producer, may cut output.

Hedge funds and other speculators have lifted their net-long positions, (or bets prices will rise), in cocoa by 10%

Cocoa for May delivery rose $US19 to $US2,526 a tonne in New York. The price earlier reached $US2,587, the highest since June 1984.

Cocoa has risen 18% in the last four weeks as the Ivory Coast has seen little rain.

Ivory Coast's second-crop is collected from April through September after the main-crop harvest is completed in February and March.


 

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