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LONDON, Oct 20: Oil prices hit two-year low points and base metals remained in the doldrums as markets faced up to reality and braced for a long, deep trough in the global economy.
Oil fell close to $20 a barrel in London, as the weak global economy kept a lid on demand while suppliers appeared to have few solutions for reining in volumes.
Base metals prices remained weak as few analysts were prepared to predict an upturn in sentiment in the coming months.
The consequences of the terrorist attacks on September 11th will combine with the global economic slowdown to dampen hard commodity prices in 2001, predicted the Economist Intelligence Unit (EIU). Indeed, prices for the hard commodities will recover slowly only in 2002.
Among soft commodities, coffee was the star, rebounding after weeks of heavy selling as Vietnam showed signs of easing up on sales.
GOLD: Gold prices continued to fall as investors gradually unwound positions built up during the turbulence of the past month.
By Friday afternoon, an ounce of gold stood at $279.15, from $281.80 a week earlier.
Investment funds built large net long positions and it’s their unwinding of these positions that are bringing the gold prices lower, said HSBC metals expert Merlin Marr-Johnson.
The events (in the war against terrorism) haven’t been seen to cause economic instability, equity markets are rallying, the dollar is relatively strong, it is business as usual, he said, adding nonetheless that if the political situation deteriorated gold prices could go up again.
SILVER: Silver prices ebbed in gold’s wake, with investment funds selling and little emergence of industrial demand.
An ounce of silver was going for $4.24 on Friday afternoon, from $4.42 the previous week.
PALLADIUM AND PLATINUM: Prices of the platinum group metals remained depressed by weak demand, while supply remained sufficient.
By Friday, palladium was quoted at $322 an ounce from $350 the previous week.
Platinum prices fell to $433 an ounce from $438 a week earlier.
Palladium in particular is suffering from a backlash set in motion by soaring prices earlier this year, when an ounce of the metal was going for more than $1,000.
That forced users to switch to other alternatives, weakening demand for palladium.
You’ve had substitution away from palladium, with platinum in the autocar sector, and in the electronic sector, nickel and silver, said Marr-Johnson. They’re not going to go back to palladium.
In addition to that you have a very weak industrial demand, and destocking, he said, predicting that prices were not likely to pick up in the short term.
BASE METALS: Few economists have rosy predictions for the base metals complex, which continued to languish in the doldrums this week amid scant signs of the kind of economic recovery that could restore prices to former trading ranges.
This market will not rally until there is a clear sign that the US economy has returned to positive growth, warned Lawrence Eagles, an analyst with the GNI brokerage.
A report by the EIU was no more upbeat, predicting continued basement prices for aluminium and copper at least until the middle of next year.
Prices will remain depressed by oversupply until mid-2002, it said of aluminium. There will be some recovery in early 2003 as fundamentals improve, but prices will then weaken as additional capacity comes on stream. Aluminium prices ebbed to $1,288 a ton from $1,308.
Of copper, the EIU said prices would recover in 2003 “as demand rebounds”. Copper prices stood at $1,381 a ton from Friday from $1,413 a week earlier.
Nickel was perhaps the biggest disappointment of the week, losing last week’s gain and dropping to its lowest point for two-and-a-half years amid largely technical trading. Nickel tumbled to $4,660 a ton on Friday from 5,400 a week earlier.
OIL: Oil prices fell to two-year lows this week, as demand fears persisted while suppliers in the Opec cartel appeared unable to do much about it.
Brent North Sea crude for December delivery dipped as low as $20.32 a barrel, before recovering somewhat to $20.85 on Friday afternoon, from $22.91 a week earlier.
In New York, November-dated light sweet crude futures stood at $21.27 from $23.90 the previous Friday.
Analysts said that while demand is softening because of a global economic downturn, supply remains strong because of the limited options open to the Organization of Petroleum Exporting Countries (Opec) for reducing volumes.
Opec ministers again tried to talk the market up by murmuring about output cuts. But the market knows that Opec is nervous about cutting output because such a move could hand market share over to exporters not in the club such as Russia or Mexico.
Opec in any case produces well above its current production ceiling, meaning that a cutback would be unlikely to impress the market. Instead it is trying to forge an alliance with non-Opec suppliers for a broad pact to keep volumes tight.
People are looking at the Opec call for the non-Opec people to help them out as a sign that they don’t really know what to do, said London-based oil dealer Richard Bend.
Opec are looking like they might be in a little bit of a panic at the moment, Bend said.
RUBBER: Rubber prices ebbed further as the broad economic picture failed to inspire markets.
In Kuala Lumpur, the RSS index ended Thursday at 2.125 ringgit per kilo from 2.140 ringgit the previous week.
Things are just drifting along, buyers lacking, and everybody wary of committing too much because of the global economic slowdown, said Chris Caiger, a dealer at the Symington brokerage.
COCOA: Cocoa prices stabilised as the market focused once again on expectations of a supply shortfall, though producer hedging coinciding with the start of the harvest season in Ivory Coast should keep a lid on prices.
On London’s LIFFE financial futures exchange, the price of a ton of cocoa for March delivery rose to 789 pounds on Thursday from 787 pounds the previous week.
On New York’s CSCE market, the March contract held stable at $1,054 a ton from $1,053 the week before.
COFFEE: Coffee prices were caught in a rare rally this week, as Vietnam halted its selling temporarily. Prices did show renewed signs of weakness on Friday however.
On LIFFE, Robusta quality for November rebounded to $407 a ton on Thursday from $368 the previous week.
On the CSCE, the New York futures market, Arabica prices for March delivery picked up to 48.15 cents a pound from 47.35 cents.
The market had been sold very aggressively for some two weeks because of heavy pressure from Vietnam, said one dealer in London.
SUGAR: Prices continued to fall as the market anticipated a bumper Brazilian crop and worried about the reprecussions of a possible global recession on demand.
The Brazilian harvest for 2001-2002, which Czarnikow expects to rise by two million tons to 19.16 million tons, could lead to a flood of 470,000 additional tons of sugar on to the market beginning in early 2002.
The International Sugar Organization (ISO) said this week that the Brazilian harvest would exert new pressure on prices.
For all the next months, ISO expects prices, which have fallen sharply in September, to remain weak because of political and economic tensions in the wake of the September 11 attacks in the United States.
Analysts said that the conflicts could spark a drop in demand, especially in the Middle East.
However, a fall in prices could remain relatively moderate if production is weaker than demand in this year and in 2002.
According to the most recent estimates by ISO, the global harvest is expected to reach 132.49 million tons in 2001-2002 compared with consumption of 134 million tons, making a deficit of 1.5 million tons.
In view of the historically high level of world stocks, the deficit of 1.5 million tons will not be enough to make prices rise sharply... but a deficit is a deficit and there should not be a collapse in prices, ISO siad.
On the LIFFE, the price for a tonne of white sugar for March delivery fell to $207.30 on Thursday compared with $209.10 one week earlier.
On the CSCE exchange in New York, a pound of raw sugar for March delivery brought 6.46 cents on Thursday compared with 6.65 cents one weak earlier.
SOYABEANS: The price of soyabeans continued to sag in Chicago as the harvest in the Midwest United States advanced.
Prices fell despite an announcement last week of better-than-expected US sales of 416,000 tons.
The market is still under pressure since the US harvest for 2001-2002 is expected to reach a record-level of 79.12 million tons, up from 75.06 million tonnes the previous season, according to the monthly report of the US Department of Agriculture published last Friday.
On the Chicago Board of Trade, the price of soyabeans for November delivery fell to $4.3100 a bushel from $4.4775 the previous Thursday.
A bushel of soyabean meal — used in animal feed — for December delivery fell to $157.90 per ton from $164.10 the previous Thursday.
COTTON: Prices continued to weaken, depressed by prospects of a record US harvest.
Cotton futures continue to be oppressed by massive over-supply, made even more glaring by the recent USDA supply/demand report that forecast a record-setting crop of 20.072 million bales, analysts with the Refco brokerage house said.
The Refco report, published last Friday, said world cotton stocks were expected to swell to 43.26 million bales in 2001, nearly half the global harvest.
Overproduction should lead to a fall in prices of 15.7 per cent in 2001, according to analysts with the Economist Intelligence Unit (EIU). But prices should then stabilize next year, increasing by 1.7 per cent, and by 13.3 per cent in 2003 in response to healthier demand.
On the New York Commercial Exchange, the December cotton contract dipped to 31.18 cents a pound from 32.17 last Thursday.
On the physical market, the A index, an average of the weakest world prices, fell to 36.90 cents a pound from 37.45 last week.
CEREALS: Wheat prices gained ground this week while corn prices fell back, pressured by a smoothly functioning harvest in the US Midwest.
Wheat was stronger on technical buying, inspired by reports of interest from clients such as China and Egypt, traders said.
US weekly exports of wheat, 517,000 tons, and corn, 1.17 million tons, were only of average strength, according to Dan Cekander of Fimat Futures USA in Chicago.
The figures weighed heavily on corn prices, with operators fearing that weak exports would not be enough to absorb the output from a strong harvest.
On the London futures market, the price of a ton of wheat for November delivery fell back to 74.50 pounds, from 76.05 a week ago.
In Chicago a bushel of wheat (27.2 kilograms for December delivery) rose to 283 cents from 279.25 cents last week. A bushel of corn (25.4 kilograms for November delivery) declined to 200.50 cents from 208.25 last week.
WOOL: Pricesces of Australian wool continued to soften, slipping below 700 Austalian cents for the first time since August 2000 on fears of a sharp contraction in demand.
Buyers stayed on the margins of the market, anxious that the US economic slowdown might dampen demand for sweaters and woolen winter wear, market sources said.
But prices should nonetheless firm by 14.5 per cent this year, 2.9 per cent in 2002 and then 4.1 per cent the year after that thanks to lower stocks, according to the EIU.
The Eastern index fell back to 694 Australian cents a kilo from 719 cents last week.
Britain’s Wooltop index dropped to 327 pence from 341 last week. —AFP
