Commodity prices down as eurozone debt tensions rise
Commodity prices were mostly lower this week, in line with tumbling stock markets as traders sought cover from the escalating eurozone debt crisis.
Financial markets fell sharply days as Italy, Spain and France faced a sharp spike in borrowing costs, with the debt crisis showed new signs of spreading.
The yield on Italy's 10-year government bonds topped the 7.0 percent danger level considered unsustainable for the government to service its huge debts, while Spanish bond rates approached that crucial level just ahead of elections due on Sunday.
"Further escalation of the debt crisis in Europe has led to a sharp rise in risk aversion and put pressure on commodity prices across the board," said Commerzbank analyst Carsten Fritsch.
OIL: Brent oil fell on intensifying concern over the impact of the eurozone debt crisis on global energy demand but New York oil futures hit five-month highs thanks to a deal which is expected to reduce US energy stockpiles.
"Should Europe slide into a deep recession because of the debt crisis, this would have negative consequences for oil demand," Commerzbank's Fritsch said.
Spain's treasury had to pay 6.975 percent when it raised 3.6 billion euros ($4.8 billion) in a sale of 10-year bonds Thursday, the highest rate since the creation of the single currency.
The rate was a whisker from the 7.0 percent level considered too high for governments to service their debts over the longer term.
"I think it's kind of a fear that Spain will be the next country that's going to stir up the situation," said Ker Chung Yang, commodity analyst for Phillip Futures in Singapore.
In New York, oil prices reached $103.37 -- the highest level since June 1, before falling back on profit-taking.
"Crude oil prices retreated in a healthy correction lower, tracking heavy losses in the global equity markets," said Myrto Sokou, an analyst at Sucden Financial Research.
The spike higher came after Canadian company Enbridge bought ConocoPhillips' 50-percent stake in the 330,000 barrel-per-day Seaway pipeline, which runs between the US Gulf of Mexico coast and the Cushing, Oklahoma oil storage hub.
Enterprise Product Partners, which owns the other 50 percent of Seaway, said it would reverse the pipeline to move oil to the Gulf coast refining hub from Cushing starting in mid-2012.
This is expected to further narrow the broad gap between London and New York oil prices caused by high stockpiles in Cushing.
"The reversal of the Seaway pipeline (has already) resulted in a significant narrowing of the WTI-Brent spread, due to the notion that the so-called US Midwest glut will now be resolved," Barclays Capital analyst Amrita Sen said.
By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in January stood at $109.04 compared with $114.22 for the December contract a week earlier.
On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for December, was almost flat at $98.84 compared with $98.82.
PRECIOUS METALS: Gold led precious metals lower.
"Bullion suffered from renewed profit-taking, driven by a broader market sell-off, with other metals in the sector also suffering substantial losses," said Andrey Kryuchenkov, an analyst at Russian financial group VTB Capital.
The World Gold Council on Thursday forecast that global economic uncertainty would continue to support investor demand for the metal, even as record prices force a slump in the jewellery market.
Global demand for gold was 1,054 tonnes in the three months to September, up 6.0 percent year-on-year -- equal to a record $57.7 billion in value terms, the industry body said in a report.
The increase was driven by a 33 percent rise in investment demand, with gold offering a safehaven after a US sovereign debt downgrade, plunging global equity markets and the escalating eurozone crisis.
The investment surge offset a 10 percent drop in jewellery demand during the quarter as gold prices hit a record $1,920 per ounce in September.
"Investors across the globe sought to protect their wealth, diversify their risk and benefit from gold's strong returns," the WGC said in a report.
"Given gold's proven risk mitigation properties, it is likely that investors will continue to seek protection from economic uncertainty, which shows no signs of abating," Marcus Grubb, WGC's investment managing director said.
By late Friday on the London Bullion Market, gold dropped to $1,719 an ounce from $1,773 the previous week.
Silver fell to $32.25 an ounce from $33.77.
On the London Platinum and Palladium Market, platinum slipped to $1,594 an ounce from $1,628.
Palladium tumbled to $608 an ounce from $651.
BASE METALS: Industrial metals prices mainly retreated.
"Base metals are losing ground as bond yields for the peripheral eurozone countries are continuing to surge and sentiment is caught in an ever worsening downward spiral of negativity, with the risks of both economic and financial contagion at heightened levels," said Credit Agricole CIB analyst Robin Bhar.
Highlighting "these fears, the miner BHP Billiton has turned more wary on the outlook for commodity markets, warning that some customers, mainly smaller companies, are starting to face tighter access to trade finance and some are cutting production."
By late Friday on the London Metal Exchange, copper for delivery in three months fell to $7,525 a tonne from $7,623 the previous week.
Three-month aluminium dropped to $2,105 a tonne from $2,169.
Three-month lead firmed to $2,060 a tonne from $1,996.
Three-month tin decreased to $21,300 a tonne from $21,700.
Three-month zinc advanced to $1,963 a tonne from $1,912.
Three-month nickel retreated to $17,850 a tonne from $18,350.
COCOA: Cocoa prices hit fresh lows owing to ample supplies and lower demand.
By Friday on LIFFE, London's futures exchange, cocoa for delivery in March traded at £1,584 a tonne compared with £1,587 for the December contract a week earlier.
In New York on the NYBOT-ICE, cocoa for March hit $2,492 a tonne compared with $2,505 for the December contract.
COFFEE: Prices extended gains as rain threatens to impact harvests in major exporters Colombia and Brazil.
"The rally ... is probably on news that rainfall in major growing areas of Brazil is well below the long-term average," said Commerzbank's Fritsch.
"In Central America, problems are currently being caused by too much rain and the signals from Colombia are not very encouraging either, with the crop volume in October being 19 percent lower, year-on-year," he added.
By Friday on LIFFE, Robusta for delivery in January climbed to $1,846 a tonne from $1,832 a week earlier.
On NYBOT-ICE, Arabica for March stood at 236.85 US cents a pound compared with 230.05 US cents for December contract.
SUGAR: Futures fell further owing to a series of factors.
"Mounting concerns in the global economy, a lack of nearby demand, and expectations for large supplies all contributed to the move lower," said The Public Ledger, a respected commodities publication.
"Recent rains in Brazil were also putting some downward pressure on values as the moisture should help with development of next year's sugarcane crop," it added.
By Friday on NYBOT-ICE, the price of unrefined sugar for delivery in March was down to 24.23 US cents a pound from 25.18 cents a week earlier.
On LIFFE, the price of a tonne of white sugar for December dropped to £627.4 from £660.
GRAINS AND SOYA: Maize, wheat and soya prices slipped.
By Friday on the Chicago Board of Trade, maize for delivery in December dropped to $6.02 a bushel from $6.38 a week earlier.
Wheat for December decreased to $5.93 a bushel from $6.16.
January-dated soyabean meal -- used in animal feed -- slipped to $11.65 a bushel from $11.75.
RUBBER: Rubber prices rebounded on expectations of higher Chinese demand.
The Malaysian Rubber Board's benchmark SMR20 jumped to 335.45 US cents a kilo from 312.70 cents the previous week.
© 2011 AFP