Commodity markets were rattled last week as China tightened money supply in a bid to tame economic growth and prevent a looming asset bubble, analysts said. China, one of the biggest consumers of raw materials, moved Tuesday to rein in a surge of aggressive lending by banks that had raised fears of inflation and an unhealthy concentration of assets.
The nation's central bank hiked the minimum amount of money that banks must keep in reserve for the first time in more than a year. It also raised the interest rate on its one-year treasury bills, after last week lifting the rate on its three-month bills, increasing borrowing costs. "China's move to raise the minimum reserve requirements for Chinese banks brought the entire commodity sector under pressure," said Commerzbank analysts in a note to clients.
OIL: World crude prices slumped under 78 dollars a barrel this week on concerns over weak energy demand - but not before spiking to a 15-month high thanks to recent robust Chinese energy data, analysts said. In choppy trade, New York crude had struck a 15-month high of 83.95 dollars on Monday.
China, the world's second-largest energy consumer behind the United States, saw exports surge 17.7 percent in December, after 13 months of declines. Chinese oil imports rose to a record five million barrels a day in December, a 48 percent jump compared with the same month in 2008. However, prices began tumbling as China moved to tighten lending conditions in the Asian powerhouse economy.
The market also fell on expectations of lower energy demand amid the easing northern hemisphere winter. "Sentiment has been hit by easing weather predictions, higher than expected stockpiles, and indications of a tightening in monetary policy in China," said ODL Markets analyst Marius Paun.
The US Department of Energy said crude reserves soared 3.7 million barrels in the week ending January 8, far more than the consensus forecast for a 1.0-million-barrel gain. Distillates - including heating fuel and diesel - rose 1.4 million barrels, the DoE said, confounding forecasts for a 1.8-million-barrel drop.
Distillates are currently in focus amid an ongoing cold snap in the United States but forecasters have predicted milder weather for the weeks ahead. Prices were also impacted by the Commodity Futures Trading Commission's proposal Thursday to regulate the energy futures market.
Meanwhile, the International Energy Agency said Friday that oil demand in 2010 will be "sluggish" in the developed world, with emerging markets accounting for any increases and top producers switching supplies to eastern growth markets. The IEA also warned of possible "downside risks" to economic recovery for members of the Organisation for Economic Co-operation and Development, which groups the world's 30 richest economies.
By late Friday, New York's main futures contract, light sweet crude for delivery in February, dived to 78.44 dollars a barrel from 82.22 dollars a week earlier. London's Brent North Sea crude for March delivery plunged to 77.55 dollars compared with 81.05 dollars for the now-expired February contract a week earlier.
PRECIOUS METALS: Platinum and palladium hit fresh multi-month highs, buoyed by Chinese demand and last week's US launch of exchange traded funds (ETFs). Platinum rallied as high as 1,627.38 dollars per ounce, the best level since August 2008, and palladium hit 454 dollars an ounce, which was last witnessed in July that year.
"The newly launched US platinum group metal exchange traded funds continue to attract investor interest," said Barclays Capital analysts. The new ETFs allow traders to invest money more easily in the commodities, without trading on the futures market. Gold, meanwhile, forged a five-week peak amid a prediction from consultancy GFMS that it would likely hit new historic highs this year - thanks to a wave of investment money.
"This (gold) market is now almost entirely driven by investment flows," GFMS boss Paul Walker told AFP. "The flows can come very strongly and drive the price well above 1,200-dollar range, towards even 1,300 dollars." Gold, whose two main drivers are jewellery and investment buyers, had smashed a series of records last year on the back of inflationary fears and increasing moves by central banks to diversify assets away from the dollar.
The glamorous metal, which is traditionally viewed as a safe-haven investment, hit a record pinnacle of 1,226.56 dollars an ounce on December 3. GFMS also forecast Wednesday that investment demand for gold would be propelled by fears of a so-called "double dip" recession - which would see the battered world economy plunged back into another downturn.
By Friday on the London Bullion Market, gold rose to 1,128 dollars an ounce, from 1,126.75 dollars the previous week. Silver gained to 18.52 dollars an ounce from 18.12 dollars. On the London Platinum and Palladium Market, platinum increased to 1,600 dollars an ounce from 1,569 dollars. Palladium jumped to 449 dollars an ounce from 431 dollars.
BASE METALS: Base metals mainly fell as many investors re-allocated their cash elsewhere and after China attempted to cool its economy, but tin forged a 16-month pinnacle on the back of keen demand. "The continued re-allocation in commodity indices is contributing to the current price correction in base metals, as most metals' weights are being reduced," Commerzbank analysts wrote in a note.
"China's announcement to raise the minimum reserve requirements for its domestic banks also weighed on market sentiment." However, tin struck 18,500 dollars, reaching the highest level since mid-September 2008. By Friday on the London Metal Exchange, copper for delivery in three months fell to 7,430 dollars a tonne from 7,525 dollars the previous week.
-- Three-month aluminium slid to 2,317 dollars a tonne from 2,323 dollars.
-- Three-month lead recoiled to 2,460 dollars a tonne from 2,580 dollars.
-- Three-month tin increased to 18,125 dollars a tonne from 17,571 dollars.
-- Three-month zinc dipped to 2,472 dollars a tonne from 2,570 dollars.
-- Three-month nickel declined to 18,302 dollars a tonne from 18,330 dollars.
SUGAR: Sugar prices ran into profit-taking after scoring 29-year highs the previous week on forecasts of lower output from India.
By Friday on the New York Board of Trade (NYBOT), the price of unrefined sugar for March dipped to 27.46 US cents a pound from 28.14 cents on Thursday of the previous week. On Liffe, London's futures exchange, the price of a tonne of white sugar for delivery in March fell to 719.20 pounds from 730.30 pounds.
COCOA: Prices soared close to a 30-year pinnacle on news of resurgent demand for the raw material that is mostly used to make chocolate. In London, cocoa struck 2,312 pounds a tonne - which was a whisker away from the 2,337 dollars hit on December 17. That was last seen in October 1977.
"News about a pick-up in demand was the major underlying price driver," said Commerzbank analysts in a note. "Accordingly, the cocoa processing volume in Europe rose by 0.6 percent year-on-year during the fourth quarter of 2009, the first increase in one year. "Germany, where cocoa processing companies reported an annual increase of 9.4 percent, was largely attributable for this increase."
By Friday on Liffe, the price of cocoa for delivery in March rose to 2,297 pounds a tonne from 2,282 pounds the previous week. On the NYBOT, the March cocoa contract gained to 3,397 dollars a tonne from 3,262 dollars.
COFFEE: Coffee prices drifted lower in quiet trade. By Friday on Liffe, Robusta for delivery in March eased to 1,375 dollars a tonne from 1,397 dollars the previous week. On the NYBOT, Arabica for March fell to 140.90 US cents a pound from 144.75 cents.
GRAINS AND SOYA: Grains and soya prices dipped on news of a record corn crop in the United States. By Friday on the Chicago Board of Trade, maize for delivery in March fell to 3.75 dollars a bushel from 4.23 dollars the previous week. March-dated soyabean meal - used in animal feed - sank to 9.84 dollars from 10.22 dollars. Wheat for March declined to 5.20 dollars a bushel from 5.68 dollars.
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