Commodity prices drop on eurozone, China fears

19th November 2010, Comments 0 comments

Commodity prices slid this week on heightened concerns over European sovereign debt amid a likely bailout for Ireland while Chinese steps to tackle soaring inflation also weighed.

International financial experts and Irish officials were locked in negotiations Friday on a possible bailout for the debt-ridden economy at the heart of fears about the future of the eurozone.

China's central bank meanwhile on Friday said it would raise the amount of money that lenders must keep in reserve as officials step up efforts to contain the country's soaring inflation rate, especially for food and housing.

OIL: Prices tumbled as traders fretted over European sovereign debt, a stronger dollar and Chinese plans to fight inflation.

The euro plunged close to a two-month low under 1.35 dollars on Tuesday as eurozone finance ministers held a crunch meeting in Brussels to address Ireland's debt crisis.

A stronger dollar makes it more expensive for investors holding other currencies to buy dollar-denominated commodities like crude oil.

But the single currency recovered later in the week, rising above 1.37 dollars as a team of experts from the European Union and the International Monetary Fund flew into Dublin to examine the nation's books.

Crisis-hit Ireland is widely expected to receive a multi-billion-euro bailout from the EU/IMF, just six months after Greece was rescued via a 110-billion-euro (150-billion-dollar) package.

Ireland could receive "tens of billions" of euros in an international bailout, said Irish Central Bank chief Patrick Honohan.

The oil market also fell this week on profit-taking, after hitting two-year peaks last week on the back of a weaker dollar and the prospect of a strong global economic recovery.

Traders meanwhile shrugged off news that US crude inventories plunged by 7.3 million barrels in the week to November 12. That was the biggest weekly drop for 15 months and much weaker than forecasts of a 100,000-barrel decline.

By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in January stood at 84.11 dollars a barrel compared with 87.86 dollars for the now expired December contract a week earlier.

On the New York Mercantile Exchange, Texas light sweet crude for December dropped to 81.20 dollars from 86.62 dollars.

BASE METALS: Prices hit two-month lows, one week after copper soared to a record 8,966 dollars a tonne on supportive Chinese economic data, tight global supplies and strikes in key producer Chile.

Tin had also struck an all-time high the previous week.

"Concerns over China slowing and the sovereign debt issues in Europe have knocked sentiment. Considering the metals had become overbought, it is not so surprising the pull-backs have been vicious," said William Adams, an analyst at

The London Metal Exchange announced plans to launch reference prices for copper, aluminium and zinc based on activity during Asian trading hours from next January to meet growing demand.

The LME said that its electronic trading platform, LMEselect, has seen early morning trading grow significantly in recent years, with average daily volume before 7:00 am London time up 90 percent so far in 2010 compared with 2009.

By late Friday on the London Metal Exchange, copper for delivery in three months dropped to 8,385 dollars a tonne from 8,695 dollars a week earlier.

Three-month aluminium slid to 2,284 dollars a tonne from 2,445 dollars.

Three-month lead retreated to 2,270 dollars a tonne from 2,545 dollars.

Three-month tin slumped to 25,200 dollars a tonne from 26,450 dollars from a week earlier.

Three-month zinc decreased to 2,142 dollars a tonne from 2,447 dollars.

Three-month nickel declined to 21,741 dollars a tonne from 23,341 dollars.

PRECIOUS METALS: Prices mostly retreated one week after gold soared to a record 1,424.60 dollars an ounce and sister metal silver reached a 30-year peak.

"As a whole, the precious metals are set to remain volatile and are vulnerable to liquidation on bouts of risk reduction," said James Moore, an analyst at

Gold is seen as a safe-haven asset in times of economic uncertainty and as a safe store of value amid rising inflation.

By late Friday on the London Bullion Market, gold dropped to 1,342.50 dollars an ounce at the late fixing from 1,388.50 dollars a week earlier.

Silver edged up to 27.07 dollars an ounce from 26.79 dollars.

On the London Platinum and Palladium Market, platinum fell to 1,650 dollars an ounce from 1,712 dollars.

Palladium decreased to 695 dollars an ounce from 703 dollars.

SUGAR: Contracts diverged, one week after soaring to multi-year highs.

"The fear of interest rate hikes in China was taken as an occasion for a substantial correction on many agricultural commodity markets," noted analysts at Commerzbank.

Sugar, which has risen as much as 140 percent since May, is used mainly in the food and drinks sector but also goes into the production of ethanol -- a cheaper version of gasoline, or motor fuel.

By Friday on the New York Board of Trade (NYBOT), the price of unrefined sugar for delivery in March rose to 28.13 US cents a pound from 28 cents a week earlier.

On LIFFE -- London's futures exchange -- the price of a tonne of white sugar for March stood at 710.9 pounds compared with 735 pounds for the expired December contract.

COFFEE: Prices rose but failed to get close to multi-year peaks reached during the previous week.

By Friday on NYBOT, Arabica for delivery March stood at 209.30 cents a pound compared with 204.15 cents for the expired December contract the previous week.

On LIFFE, Robusta for January rose to 1,900 dollars a tonne from 1,895 dollars.

COCOA: Prices rose ahead of this month's presidential run-off in key producing nation Ivory Coast.

By Friday On NYBOT, cocoa for delivery in March climbed to 2,929 dollars a tonne from 2,790 dollars a week earlier.

On LIFFE, cocoa for December strengthened to 1,925 pounds a tonne from 1,811 pounds.

GRAINS AND SOYA: Wheat and soya prices fell, while maize steadied after recently reaching multi-year highs.

By Friday on the Chicago Board of Trade, January-dated soyabean meal -- used in animal feed -- dropped to 12.21 dollars a bushel from 12.69 dollars the previous week.

Maize for delivery in December was unchanged at 5.34 dollars a bushel.

Wheat for December slid to 6.40 dollars from 6.69 dollars.

RUBBER: Malaysian rubber prices dropped on concerns China may impose additional measures to curb inflation that could dampen commodity prices, traders said.

The Malaysian Rubber Board's benchmark SMR20 fell to 427.15 US cents per kilo from 433.85 cents last week.

© 2010 AFP

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