Crude oil, metals sink on eurozone crisis fears

21st May 2010, Comments 0 comments

Many commodities plunged this week, with oil approaching 10-month lows, as traders worried about the eurozone debt crisis, the strong dollar, Chinese demand and falling global share prices.

Gold faced heavy losses as many traders also took profits after striking a record high the previous week.

"The commodity markets have been driven by currency movements and the general negative sentiment across the global equity markets," said Sucden analyst Myrto Sokou.

The European single currency plummeted to a four-year low of 1.2144 dollars on Wednesday as fears grew about massive debt and high public deficits in the eurozone.

Markets were also shocked by Germany's unilateral move to impose restrictions on what it termed highly speculative trading practices.

"Commodities have received further pressure from a strengthening US dollar and amid concerns about the Chinese economic slowdown that could affect demand levels for oil and base metals in the near-term," added Sokou.

In a study published this week, meanwhile, London-based consultancy Capital Economics said crude oil and industrial metals have plunged by between 15-25 percent in value between April 20 and May 20.

"The sharp falls in many commodity prices over the past month reflect a mix of pressures and worries, some of which are temporary but most of which are not," added economist Julian Jessop at Capital Economics.

Turning to China, he said: "China's demand for commodities has been temporarily boosted by stockpiling. Even without the aggressive policy tightening that many currently fear, China's demand for commodities will slow."

Jessop also warned that eurozone uncertainty has sparked profit-taking in many commodities.

Many western nations spent billions of dollars on banking-sector bailouts and financial stimulus measures to avert meltdown during the global financial crisis -- and are now nursing enormous deficits as a result.

"The eurozone's problems are a painful reminder that the global financial crisis has only been partly resolved by transferring it from the banking sector to the public finances," Jessop said.

"The uncertainty created by doubts over the future of the euro is encouraging profit-taking on all sorts of riskier assets, including commodities."

OIL: Crude oil nosedived as the euro plumbed a four-year dollar low, and investors reacted to unexpectedly weak jobless claims data in top energy consumer the United States.

A stronger US unit makes dollar-priced crude more expensive for buyers using weaker currencies, denting demand, which leads to lower prices.

New York crude collapsed on Thursday to 64.24 dollars, its lowest level since July 30, 2009, while Brent oil hit 70.20 dollars, a level last seen in early February.

"Crude oil prices tumbled this week ... as the euro slid to a four-year low against a robust US dollar that weighed heavily on most commodity prices," added Sokou.

"Prices extended losses amid news that Germany decided to ban naked short-selling of some securities (in a move) that raised further concerns over the eurozone's debt crisis and its long-term growth opportunities."

Global equities sank heavily after Germany banned so-called naked short-selling in eurozone government bonds, associated insurance derivatives and 10 major financial stocks, fuelling the sense of crisis in Europe.

In a naked short, a trader sells a stock that he does not yet own, hoping to be able to borrow or buy it more cheaply before he has to part with it, and thus being able to pocket the difference.

Markets remain unconvinced that an EU-IMF rescue package worth almost a trillion dollars will help prevent the Greek debt crisis from spreading.

VTB Capital's Andrey Kryuchenkov said it was "the same old story of yet another week of losses as investors continue to pull out of riskier assets."

Oil also took a hit from the faltering US economic recovery, after the Labor Department said initial jobless claims totalled 471,000 in the week to May 15, up 5.6 percent from the prior week.

By late Friday on the New York Mercantile Exchange, Texas light sweet crude for delivery in July sank to 70.02 dollars, from 73.25 a week earlier for the now-expired June contract.

On London's Intercontinental Exchange, Brent North Sea crude for July delivery dropped to 71.72 dollars compared with 77.75 dollars for the June contract.

PRECIOUS METALS: Prices plunged on the back of the strong dollar, with gold dropping nearly five percent, silver losing almost 10 percent and palladium wiping out more than one fifth of its value.

Platinum hit the lowest point since late December 2009 and ended the week down 13.3 percent.

"Gold tumbled in volatile trading ... with investors cashing in on the precious metal," said Kryuchenkov.

The glamorous had hit an all-time pinnacle of 1,249.40 dollars an ounce last week, dragging sister metal silver to a two-year peak.

In recent weeks, heightened concerns about the risk of contagion from Greece's debt woes has attracted fresh inflows of cash into gold, which is widely regarded as a safe bet in times of economic uncertainty.

By late Friday on the London Bullion Market, gold tumbled to 1,179.75 dollars an ounce from 1,236.50 dollars the previous week.

Silver slid to 17.72 dollars an ounce from 19.64 dollars.

On the London Platinum and Palladium Market, platinum slumped to 1,492 dollars an ounce from 1,721 dollars.

Palladium collapsed to 419 dollars an ounce from 536 dollars.

BASE METALS: Base metals prices also fell across the board.

"High debt and fiscal restraint in Europe, and fears of further moves to tighten monetary policy in China combined to raise concern that global economic recovery would be derailed, slowing demand for copper," said Credit Agricole CIB analyst Robin Bhar.

Copper plummeted to 6,415 dollars per tonne on Thursday, hitting a low last seen in early February.

By Friday on the London Metal Exchange, copper for delivery in three months slid to 6,731 dollars a tonne from 6,908 dollars a week earlier.

Three-month aluminium dipped to 2,036 dollars a tonne from 2,093 dollars.

Three-month lead fell to 1,766 dollars a tonne from 1,950 dollars.

Three-month tin dipped to 17,400 dollars a tonne from 17,500 dollars.

Three-month zinc slipped to 1,878 dollars a tonne from 2,050 dollars.

Three-month nickel slid to 21,255 dollars a tonne from 21,650 dollars.

COCOA: Cocoa rose as some agricultural commodities appeared to shrug off economic concerns.

"Agricultural commodities, which are less sensitive to the economic cycle, have held up relatively well," added Jessop at Capital Economics.

By Friday on LIFFE, the price of cocoa for delivery in July increased to 2,317 pounds a tonne from 2,232 pounds the previous week.

On the NYBOT, the July cocoa contract grew to 2,896 dollars a tonne from 2,858 dollars.

SUGAR: Sugar prices extended their recovery from recent one-year lows.

By Friday on the New York Board of Trade (NYBOT), the price of unrefined sugar for delivery in July climbed to 15.45 US cents a pound from 14.88 cents the previous week.

On LIFFE, London's futures exchange, the price of a tonne of white sugar for August increased to 497.60 pounds from 470 pounds.

GRAINS AND SOYA: Soyabean and wheat fell but maize eked out a slender gain.

By Friday on the Chicago Board of Trade, maize for delivery in July firmed to 3.66 dollars a bushel from 3.63 dollars the previous week.

July-dated soyabean meal -- used in animal feed -- dropped to 9.46 dollars from 9.53 dollars.

Wheat for July eased to 4.69 dollars a bushel from 4.71 dollars.

COFFEE: Coffee prices pulled lower.

By Friday on LIFFE, Robusta for delivery in July eased to 1,334 dollars a tonne from 1,392 dollars the previous week.

On the NYBOT, Arabica for July slipped to 132 US cents a pound from 136.25 cents.

RUBBER: Malaysian rubber prices dropped in subdued trade.

The Malaysian Rubber Board's benchmark SMR20 fell to 270.30 US cents per kilo, from 282.95 cents last week.


© 2010 AFP

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