Commodities buckle on eurozone, recession worries

30th September 2011, Comments 0 comments

Commodity prices buckled this week, with gold slumping, as investors fretted over the unresolved eurozone debt crisis and growing recession fears that are blighting financial markets worldwide.

"Macroeconomic unease, fragile sentiment and choppy external markets have led to a week of volatile and mostly weaker commodity prices," said Barclays Capital analyst Sudakshina Unnikrishnan.

The German parliament on Thursday voted overwhelmingly to beef up the size and scope of the 440-billion-euro ($590 billion) European Financial Stability Facility (EFSF), handing it new powers and easing eurozone crisis concerns.

The move by Germany was greeted with relief by traders, with attention now turning to the key international audit of debt-mired Greece.

Investors are still on edge amid stubborn worries that Greece could still default, sparking concern over other debt-laden eurozone nations and fears of a new economic downturn.

"The global macroeconomic picture looks fairly gloomy at the moment, following weak US economic figures and ongoing worries about the eurozone's debt issues," said Sucden analyst Myrto Sokou.

"The situation in Greece remains crucial, causing further volatility and nervous trading across the markets. Thus, investors should remain cautious as trading conditions in the oil market are very tentative."

Looking ahead, she added: "Volatility is going to remain on the commodities board as the situation in the eurozone is still uncertain without a clear solution for the Greek debt issues."

PRECIOUS METALS: Gold tumbled as low as $1,532.72 on Monday -- hitting the lowest point since July.

The precious metal, which is traditionally regarded as a safe haven for investors, has now shed more than 20 percent of its value since striking a record peak at $1,921.15 an ounce on September 6.

"Gold, when the heat is really on, is once again proving not to be the safe haven so often claimed," said PVM commodities analyst David Hufton.

"It works when there is general concern in a low interest rate environment but when there is a desperate need for cash, it is hit along with everything else."

A rising US currency, meanwhile, makes dollar-priced raw materials more expensive to holders of other currencies, thereby softening demand.

"Perhaps most damaging of all for gold has been the price volatility which has prompted many investors simply to back off for the time being," said Ross Norman, boss of London bullion brokers Sharps Pixley.

"The best argument for weaker gold prices has been the relative strength of the US dollar."

By late Friday on the London Bullion Market, gold sank to $1,620 an ounce from $1,689 the previous week.

Silver dropped to $30.45 an ounce from $32.90.

On the London Platinum and Palladium Market, platinum retreated to $1,511 an ounce from $1,651.

Palladium decreased to $614 an ounce from $659.

BASE METALS: Industrial or base metal prices mostly fell, with sentiment hurt by global economic woes, while investors digested news of a potential takeover battle brewing for control of the London Metal Exchange.

"Base metals have moved quickly to price in downgrades to global growth expectations, and the question of how much further prices can fall is likely to dominate discussions," added Unnikrishnan at Barclays Capital.

"We have revised all our base metal price forecasts lower to reflect the weaker demand outlook and the collapse in sentiment."

Tin meanwhile rose, bucking the downward trend, after the world's biggest tin exporter Indonesia threw its support behind a ban on tin exports aimed at reviving slumping prices.

Separately, the London Metal Exchange (LME) has announced that it had received "several" expressions of interest.

LME Chief Executive Martin Abbott revealed this week that at least ten interested parties had approached the group about a potential buyout.

The 134-year-old LME, situated in the heart of London's City finance district, is the traditional home for trading of base metals aluminium, copper, lead, tin and zinc.

By late Friday on the LME, copper for delivery in three months dived to $7,070 a tonne from $7,488 the previous week.

Three-month aluminium slid to $2,223 a tonne from $2,241.

Three-month lead dropped to $2,000 a tonne from $2,046.

Three-month tin increased to $20,500 a tonne from $19,700.

Three-month zinc retreated to $1,905 a tonne from $1,968.

Three-month nickel fell to $18,150 a tonne from $18,355.

OIL: World oil prices fell on Friday but finished the week on a stable note after rollercoaster trade over the past five days.

Crude futures had surged by more than four dollars in New York on Tuesday, mirroring huge gains in stock markets, as investors hoped that European leaders would contain the eurozone debt crisis.

But prices tumbled on Wednesday as those hopes subsided and after data showed a bigger than expected increase in energy stockpiles in the United States, indicating weak demand in the world's biggest economy and oil consumer.

Oil edged higher Thursday on news that German lawmakers had approved an expansion of the eurozone's rescue fund while sentiment was also lifted by hopeful economic data in the United States.

However, those gains were capped by news of plunging German retail sales and a contracting manufacturing sector in China, sparking a modest selloff on Friday.

"Crude oil prices retreated sharply on Friday, tracking heavy losses in global equity markets as persistent concerns about weak oil demand in the medium-term weighed heavily on the market and hurt sentiment," added Sokou.

European stock markets also tumbled on Friday, the last trading day of the third quarter, as markets doubted whether a boost to the eurozone bailout fund would provide the panacea to the bloc's debt crisis.

By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in November retreated to $103.12 a barrel from $104.60 a week earlier.

On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for November, firmed to $80.65 a barrel from $80.00.

COCOA: Prices hit another two-year low in London at £1,713 per tonne.

By Friday on LIFFE, London's futures exchange, cocoa for delivery in December dropped to £1,724 a tonne from £1,760 the previous week.

In New York on the NYBOT-ICE, cocoa for December slid to $2,658 a tonne from $2,669.

COFFEE: Coffee prices fell further, striking a nine-month trough at 229.15 cents per pound in New York.

Meanwhile, the International Coffee Organization on Friday appointed Brazil's Roberio Oliveira Silva to be its new executive director, maintaining the South American country's grip at the top of the industry group.

Brazil is the world's biggest coffee exporting and producing nation, accounting for more than one third of total global output.

The London-based body represents 77 countries that export or import coffee beans. Together they produce 97 percent and consume more than 80 percent of the world's coffee.

By Friday on NYBOT-ICE, Arabica for delivery in December dropped to 230 US cents a pound from 239 US cents the previous week.

On LIFFE, Robusta for November declined to $1,979 a tonne from $2,019 a tonne.

SUGAR: Sugar prices firmed, having retreated recently on hopes that the 2011/12 season would see the first major surplus in three years.

By Friday on NYBOT-ICE, the price of unrefined sugar for delivery in March stood at 25.19 US cents a pound compared with 24.30 cents a week earlier.

On LIFFE, the price of a tonne of white sugar for December rose to £657 from £623.30 the previous week.

RUBBER: Prices slid as buyers stayed on the sidelines amid concerns about the global economy and Europe's deepening debt crisis.

The Malaysian Rubber Board's benchmark SMR20 slipped to 412.75 US cents a kilo from 443.65 US cents the previous week.


© 2011 AFP

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