World commodity report
OIL prices have slumped in recent weeks owing to easing supply concerns crude futures fell to their lowest points since striking record high points above $78 per barrel in July and August largely owing to adequate supplies, easing worries over Iran’s nuclear programme and an absence of hurricane damage to oil installations. Prices were weighed down further mid September by Opec’s pledge to keep output unchanged and forecasts of weakening demand.
Meanwhile the Organisation of Petroleum Exporting Countries said in a report that world oil demand was weaker than expected in the first half of 2006 because increasingly efficient use of oil was limiting consumption.
Opec oil ministers had decided in Vienna to maintain their oil output ceiling at a near 25-year high, but attention quickly switched to when the group might cut production to stem falling prices. The IMF said that the strong US and Chinese economies as well as an array of supply issues look set to keep oil prices high next year, with markets pointing to a price of 70-75 dollars a barrel.
There is ample US fuel stockpiles, which would see the world’s biggest energy burner comfortably through winter. There are rising inventories of the US natural gas and the highest heating fuel stocks in nearly seven years, which has reassured consumers of adequate winter supply.
Gold
Falling oil prices have knocked down gold prices, which came down to as low as $572.30 an ounce in the London market on September 20. Weaker oil prices reduce the risk of inflation, in turn lessening the attractiveness of gold, which is seen as a good hedge against rising costs.
“The short-term trend for gold is down. However we are not convinced that a meltdown, of the magnitude of May-June, is taking place,” Barclays Capital analyst MacNeil Curry said. Gold futures had hit $730.40 per ounce on May 12 — the highest point for 26 years — before plunging 26 per cent in one month to $542.45 on June 14.
Weak oil prices have dramatically depressed gold and silver over the last two weeks. A fall in bullion from above $660 an ounce in July to below $600 this month generated a “strong resurgence in demand” from India, the Middle East and Asia, coinciding with the beginning of the annual festival and wedding seasons which run until March. ScotiaMocatta said in a quarterly report.
In India, much of the increase can be attributed to domestic investment product demand which has recently seen a phenomenal surge at the expense on the more traditional jewellery market.
Meanwhile, silver prices slumped by 13.5 per cent this week, striking $10.47 per ounce on September 15 — their lowest level for two months. The metal could be set for a rebound, however, according to Moore. “Substantial support is expected between $10.15 and 10.40 and should limit further slippage, he said. On the London Bullion Market, silver prices dropped to $10.70 per ounce at September 15 fixing, from $12.22 the previous week.
Palladium and platinum tumbled to three-month lows. Platinum fell under $1.150 per ounce on September 15 for the first time since June 20, while palladium went below $300 per ounce.
“Platinum is now at risk of a slide back to $1,040 while a failure to hold $300 by palladium could see a correction back to the June low of $264,” Moore said.
On the London Platinum and Palladium Market, platinum dived to $1,150 per ounce at the late fixing on September 15, from $1,222 the previous week. Palladium slipped to $313 per ounce on September 15 from $320 the previous week.
Coffee
Coffee prices fell in the London market in the week ended September 17, after hitting a fresh multi year high point the previous week. Robusta coffee had risen to $1,618 per tonne a week earlier, the highest point for more than seven years. Overall, the outlook for Robusta remains positive as a result of the tight Robusta supply situation, which has been aggravated by damaged stocks in Italy, Sucden analyst Michael Davies said.
Brazilian coffee producers sold 34 per cent of an estimated 43.5 million 60kg bags 2006-07 crop by August 31, down from 40 per cent a year ago, private analysts Safras e Mercado said.
Producers had sold 27 per cent of the crop by July 31. Robustas are 41 per cent sold, versus 33 per cent at end-June and 48 per cent at the end of August 25. Meanwhile, Kenya has published new regulations that allow coffee growers to bypass a central coffee auction and negotiate better prices with overseas markets.
Eager to have a say in how much their coffee is sold for and to cut many middlemen that eat into their income, Kenyan farmers have been demanding an alternative to the auction system.
But in order to protect peasant growers, the government made it mandatory in the new rules that farmers can only make direct sales through marketing agents. These agents cannot be licensed without proof that they have access to overseas markets and must also provide a bank guarantee of $1 million to protect farmers’ money.