Commodity Markets Confused?

Sydney, April 14, 2008 (ABN Newswire) - Commodity markets were seemingly at cross purposes on Friday: some traders saw good news in the General Electric earnings slump and lowered outlook, others saw the downside as a major global industrial stock signalled its concerns about the US, European and world economic outlook.

Gold and silver fell in New York because traders saw the recent rally as slowing and failing to keep pace with crude oil and the euro, which topped records last week.

Oil prices will kick higher after Shell revealed over the weekend that it had shut a pipeline from the Gulf Coast into the US Midwest because of leaks.

Crude oil rose to the highest ever on April 9, and the euro touched a record against the US dollar on Thursday, proving that the sliding greenback is still the main underlying driver of commodities, not demand or supply factors.

Gold is up 11% so far this year and the euro has risen just over 8.3% against the US dollar, while oil is 14%.

But gold prices are down around 10% from the record $US1,033.90 an ounce reached on March 17, when the euro and oil set previous all-time highs. The metal rose 1.5% last week, despite traders' doubts.

Comex June gold fell $US4.80 to $US927 in New York on Friday.



Silver futures for May delivery fell 35.3 cents, or 2%, to $US17.69 an ounce, capping a small fall for the week. It's still up 19% so far in 2008.

Copper rose on Friday on the weaker dollar; traders ignoring the implications of the GE result.

Thanks to financial investors copper prices have risen 30% so far this year while the dollar is down 6.3% against a weighted basket of six major currencies (The US Dollar Index) and off 8.3% against the euro.

Comex May copper futures rose 2.05 cents to $US3.9445 a pound in New York. But the price was down 0.3% this week, partly due to concern the metal could be pricing itself out of some usages at a time when demand is slowing and inflation a problem for manufacturers and other customers.

May copper futures reached $US4.039 a pound on Thursday. The highest price ever for the most-active contract was $4.04 in May 2006.

China's imports of copper and copper products in March rose to 240,634 tonnes from 226,908 tonnes in February; but that was sharply lower than the 307,723 tonnes in March 2007. Traders didn't stop to consider the implications of that fall: for whatever reason China has been consuming less copper. ]

Now it might be the problems created by the winter storms in January and February, or even a response to lower demand from the US for some consumer products (computers, TV's, small appliances audio etc) that use copper.

I would have thought a 20% fall in imports might have triggered some nervousness among traders.

China now accounts for around 24% of world copper consumption. China's lower imports are not being covered by higher production. The country only produces around 850,000 tonnes of copper a year.

On the London Metal Exchange, three month copper rose $US20 to $US8,650 a tonne, or $US3.92 a pound.

Oil prices were little changed in New York after the International Energy Agency cut its 2008 global oil-demand forecast for a third straight month.

The IEA reduced its outlook by 310,000 barrels to 87.23 million barrels a day, from last month.

May crude oil rose 3 US cents to settle at $US110.14 a barrel on New York Mercantile Exchange. Prices rose 3.7% and are 77% above where they were a year ago.

In London Brent crude for May settlement rose 55 US cents to end at $US108.75 a barrel. That was a record closing price. Futures reached an all-time intraday high of $US109.98 a barrel on Thursday.

New York crude hit a record $US112.21 a barrel on April 9.

Traders ignored the IEA's forecast that demand in the US will fall 410,000 barrels to 20.38 million barrels a day in 2008 because of the slowdown, the biggest decline of any country. But strong demand in parts of Asia and the Middle East will keep global consumption growth from slowing further, according to the IEA forecast.



 

Wheat prices were easier last week, falling 8.2% on speculation rain in the southern US Great Plains will improve crop conditions.

Winter wheat prospects in Kansas were boosted by heavy rain during the week. Kansas is the biggest winter wheat producer in the US.

July wheat futures 25.75 US cents, or 2.8% to $US9.105 a bushel on the Chicago Board of Trade. The week's decline was the first in three weeks and the lowest weekly settlement since January 14.

Prices also fell after the United Nations predicted world wheat production would rise 6.8% to record 647 million tonnes this year, paving the way for a gradual recovery in tight global inventories. The Food and Agriculture Organisation said Friday that total world cereal production may rise 2.6% to 2.16 billion tonnes.

Sugar prices fell Friday, driven more by what's happening in the oil market than the sugar market.

A major influence is the relationship between oil and biofuels, especially the link between oil and the price of ethanol and the huge Brazilian sugar industry.

Easier crude oil prices are seen as a possible incentive for Brazilian mills to divert more sugar cane to ethanol production rather than sweetener.

Sugar prices fell 1.1% On Friday after hitting a three week high on Thursday after crude oil hit its new record the day before on April 9.

The International Sugar Industry (ISO) reckons there's a good chance Brazil may use the majority of the more than 500 million tonne cane harvest to make ethanol, which would take pressure off world sugar supplies and stocks and help support prices.

July sugar futures fell 0.14 cents to 12.94 US cents a pound on in new York on Friday. The contract rose 7.3% last week, after declining for three consecutive weeks.

World sugar prices have risen by around 20% so far this year.


 

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