Commodities suffer choppy trade on stubborn demand worries

07 Oct, 2012

Commodity markets traded mixed last week as investors balanced stubborn worries over the global demand outlook against easing eurozone debt crisis concerns and the faltering dollar. Investors shrugged off strong non-farm payrolls (NFP) data in the United States, which is a major consumer of raw materials.
"Growth concerns remain the major concern and one average US jobs report cannot change the fact that demand looks weak," said CMC Markets analyst Michael Hewson. The NFP report also dented expectations for fresh quantitative easing (QE) stimulus cash from the US Federal Reserve, dealers said.
Huge revisions to previous months' data released Friday gave a sharply better picture of the US jobs situation, helping push the unemployment rate down to 7.8 percent from the previous 8.1 percent. The Labour Department's fresh numbers for September showed only 114,000 jobs were generated last month, but revisions to July and August data showing many more jobs were produced and fewer people dropped out of the workforce.
"The reason for the drop in commodities (on Friday) is what this means for further asset purchases by the Fed," said Alpari analyst Craig Erlam. "We've seen QE3 have a very positive reaction in commodity prices and if this is the beginning of better employment data in the US, it's likely to prevent the Fed announcing further asset purchases."
OIL: The market had spiked higher on Thursday, with WTI soaring more than $4 as traders also fretted over clashes on the Syria-Turkey border and a fire at a major US refinery, analysts said. "Oil prices (in London) have been trading within a tight band over the past five days, bouncing between $108 and $113," said analyst Gary Hornby at British-based consultancy Inenco.
"Ongoing Middle Eastern tensions and the bearish economic outlook have been the two main drivers, however prices jumped $4 higher (on Thursday) as a fire at one of the largest oil refineries in the US saw US gasoline prices rise." He added: "Furthermore, oil supply remains tight with the continuing loss of oil from Iran, where the US sanctions have caused the Iranian currency to lose 17 percent of its value in one day, and could be the first sign that the financial sanctions against the country could be working."
Concerns are also growing over the slowing Chinese economy, which is the biggest global consumer of energy. Data showed Thursday that activity in China's non-manufacturing sectors hit a near two-year low last month. Oil continued to slide on Friday, dogged by demand worries, but ended the week on a stable note.
By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in November firmed to $111.80 a barrel from $111.77 a week earlier. On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for November eased to $90.31 a barrel, from $91.78 a week earlier.
PRECIOUS METALS: Gold surged close to a one-year high this week, boosted by the weak dollar, but trimmed gains on Friday. The euro rallied above $1.30 this week after European Central Bank president Mario Draghi reassured dealers over its bond-buying scheme, soothing concerns over the eurozone debt crisis. The unit extended those gains after the NFP data.
The falling greenback makes dollar-denominated assets cheaper for buyers using stronger currencies. This tends to stimulate demand and support higher prices. The glamorous metal spiked on Thursday to $1,796.10 - last witnessed on November 14, 2011. Silver meanwhile reached the highest level since early March, and platinum scored highs last seen in February. By late Friday on the London Bullion Market, gold rose to $1,784 an ounce from $1,776 a week earlier. Silver firmed to $34.85 an ounce from $34.65. On the London Platinum and Palladium Market, platinum increased to $1,711 an ounce from $1,668. Palladium climbed to $667 an ounce from $642.
BASE METALS: Base or industrial metals diverged as traders eyed worries over the economic slowdown in key consumer China. China's non-manufacturing Purchasing Managers' Index (PMI) Index released Wednesday fell from 56.3 in August to 53.7 in September - its lowest point since November 2010. A reading above 50 indicates expansion, while anything below points to contraction.
The figure comes after China said Monday that activity in the vital manufacturing sector came in at 49.8 in September, a slight increase from August but still showing shrinkage. Chinese economic growth slowed to 7.6 percent in the three months through June from the same period the year before, the weakest in three years. By late Friday on the London Metal Exchange, copper for delivery in three months increased to $8,321 a tonne from $8,250 a week earlier.
---- Three-month aluminium fell to $2,114 a tonne from $2,123.
---- Three-month lead dropped to $2,275 a tonne from $2,300.
---- Three-month tin rose to $22,525 a tonne from $21,700.
---- Three-month nickel grew to $18,654 a tonne from $18,576.
---- Three-month zinc sank to $2,065 a tonne from $2,120.
COCOA: Prices fell as dealers eyed the improving supply outlook in top global producer Ivory Coast. "Cocoa remains under pressure," said Commerzbank analyst Carsten Fritsch "The main reason for this pressure is the brighter crop outlook. The main harvest has just begun in the Ivory Coast." By Friday on Liffe, London's futures exchange, cocoa for delivery in December slid to £1,533 a tonne from £1,635 a week earlier. On New York's NYBOT-ICE exchange, cocoa for December sank to $2,406 a tonne from $2,543.
SUGAR: Sugar futures hit their highest levels since the start of August, as speculative buyers ploughed into the market. By Friday on NYBOT-ICE, the price of unrefined sugar for March stood at 21.37 US cents a pound compared with 20.40 cents. On Liffe, the price of a tonne of white sugar for delivery in December climbed to $595.70 from $574.90 a week earlier.
COFFEE: The coffee market drifted lower. By Friday on NYBOT-ICE, Arabica for delivery in December decreased to 173.90 US cents a pound from 174.35 cents a week earlier. On Liffe, Robusta for November declined to $2,140 a tonne from $2,175.
RUBBER: Prices rose on supply concerns as rubber stockpiles reportedly fell and major producing countries moved to limit their exports, dealers said. The Malaysian Rubber Board's benchmark SMR20 advanced to 307.35 US cents a kilo from 285.75 cents the previous week.

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