Commodities hit by Greek crisis, strong dollar

17th June 2011, Comments 0 comments

Commodity prices were rocked this week on intensifying worries over a possible Greek default, which sent the European single currency sliding against the dollar.

"The bottom fell out of a number of markets on Wednesday ... as oil led the overall group lower," said MF Global analyst Edward Meir.

"It seems that the confluence of bearish events that we have been highlighting for some time all seem to have come together on Wednesday, with the deteriorating Greek situation being the straw that finally broke the camel's back.

"In this regard, an emergency session of euro finance chiefs in Brussels on Tuesday failed to make any headway in advance of a formal ministers meeting next week, and by Wednesday, things only got worse after massive protests were staged outside the Greek parliament.

"Commodities were also hit hard by the soaring dollar as it regained its safe haven status amid the market tumult."

The euro tumbled as low as $1.4074 this week, hitting the lowest level since May 26, after eurozone finance ministers failed to agree on a second Greek bailout, amid violent anti-government protests in Athens.

A stronger greenback makes dollar-priced raw materials more expensive for buyers using weaker currencies. In turn, that tends to weigh on demand and prices.

Meanwhile on Friday, France and Germany called for a new Greece rescue package to be worked out as quickly as possible, but gave no details on how voluntary private involvement would work.

"Until such time as the markets get a clear indication as to which way the authorities are leaning, we expect to see further euro weakness, dollar strength, and consequent downward pressure on commodities," added Meir.

OIL: World oil prices plummeted close to $92 a barrel in New York as investors shunned risky assets and fretted about heightened Greek tensions, the strong dollar and poor US economic data.

New York's main contract, West Texas Intermediate light sweet crude, sank to $92.12, levels last seen on February 23.

And Brent North Sea crude for July dived as low as $111.05, a price last reached on May 24.

"The economic data from the New York Fed as well as the sovereign debt problems in the Greece crisis has everybody concerned about an economic slowdown," said Deutsche Bank analyst Adam Sieminiski.

The Federal Reserve's New York district branch reported manufacturing conditions in the region deteriorated in June, driving its index into negative territory for the first time since November 2010.

"Crude oil prices have continued to struggle near their recent lows as concerns about global recovery and Asian demand weigh on sentiment," added CMC Markets analyst Michael Hewson.

A decision by the Indian central bank to hike interest rates to 7.5 percent "has signalled that these emerging economies are starting to worry that the current pace of growth is fuelling inflationary pressures."

He added: "We could well see China follow suit later this month after this week's earlier bank reserve requirements increase."

Meanwhile the differential between New York and Brent crude struck a record, analysts said.

A cocktail of factors, including ample US crude stockpiles, firm Asian energy demand and widespread unrest in Africa, has caused world oil prices to diverge sharply.

A barrel of Brent crude oil struck a record premium of $22.79 against the price of New York crude, or West Texas Intermediate (WTI).

By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in August tumbled to $112.84 a barrel from $118.26 the previous week for the July contract.

On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for July dived to $92.70 a barrel from $99.39.

PRECIOUS METALS: Gold won solid support from its status as a safe haven investment amid global economic turmoil and high inflation, but other precious metals beat a retreat.

US inflation data showed May consumer prices were up 3.6 percent from a year ago, suggesting higher oil and commodity prices were finally being passed on from the wholesale pipeline.

That marked the highest inflation rate since was October 2008 and stoked concerns that consumers will be forced to scale back spending as inflation eats into buying power.

"Gold played its trump card as a safe haven and store of value .. and could escape from the general downtrend on commodity markets and the much firmer US dollar," Commerzbank analysts said.

"The debt crisis in Greece has widened into a political crisis and Greek insolvency is becoming increasingly likely.

"The current very high level of uncertainty is still causing risk aversion of market players to rise and gold is profiting accordingly.

"Furthermore, the US inflation rate in May that was published yesterday was much higher than expected, and actually the highest level since October 2008 at 3.6 percent."

By late Friday on the London Bullion Market, gold climbed to $1,537.50 an ounce from $1,529.25 the previous week.

Silver eased to $35.39 an ounce from $37.38.

On the London Platinum and Palladium Market, platinum dived to $1,751 an ounce from $1,829.

Palladium fell to $754 an ounce from $810.

BASE METALS: Industrial metals prices mainly fell.

"Base metal prices continue to be weaker as Greek debt contagion worries weighed on sentiment, said Barclays Capital analyst Suki Cooper.

However, copper bucked the trend to post an impressive performance on expectations of rising demand from the world's emerging economies.

"Copper prices look set to post their best week since early May on speculation that demand should remain fairly strong in emerging markets," added Hewson at CMC Markets.

By late Friday on the London Metal Exchange (LME), copper for delivery in three months rallied to $9,147 a tonne from $8,931 the previous week.

Three-month aluminium sank to $2,553 a tonne from $2,610.

Three-month lead fell to $2,477 a tonne from $2,550.

Three-month tin slid to $25,145 a tonne from $25,401.

Three-month zinc dipped to $2,216 a tonne from $2,256.

Three-month nickel dropped to $21,924 a tonne from $22,856.

COCOA: Prices declined in line with most other markets.

By Friday on LIFFE, London's futures exchange, cocoa for delivery in September recoiled to £1,831 a tonne from £1,857 the previous week.

In New York on the NYBOT-ICE, cocoa for September fell to $2,908 a tonne from $2,987.

COFFEE: Coffee prices struck their lowest levels for about three months on the back of abundant supplies.

By Friday on NYBOT-ICE, Arabica for September dipped to 254.10 US cents a pound from 263.70 cents the previous week.

On LIFFE, Robusta for delivery in September fell to $2,404 a tonne from $2,511.

SUGAR: The suger market diverged but won modest support from a tight supply situation.

"The current situation may reflect the recent tightness as a result of port logjams in Thailand and South Brazil" as ships arrive to fulfill contracts with end users who took advantage of the brief window of opportunity earlier last month to meet internal demand and even replenish stocks," said Sucden analyst Nick Penney.

By Friday on NYBOT-ICE, the price of unrefined sugar for delivery in October rose to 25.02 US cents a pound from 24.36 cents the previous week.

On LIFFE, the price of a tonne of white sugar for August eased to £720.90 from £722.50.

GRAINS AND SOYA: Corn or maize prices fell as traders banked profits after striking record highs the previous week.

"Corn prices are expected to remain high in spite of high coarse grain production due to a tight supply and demand balance," said Deutsche Bank analyst Claire Schaffnit-Chatterjee.

"Given low stocks of corn, wheat and soyabeans, price volatility should remain high."

Corn had rocketed last week to an all-time peak at $7.99 per bushel, propelled by supply fears after the US Department of Agriculture (USDA) slashed its production forecasts for the new crop year.

By Friday on the Chicago Board of Trade, maize for delivery in July fell to $7.12 a bushel from $7.86 a week earlier.

July-dated soyabean meal -- used in animal feed -- slid to $13.54 a bushel from $13.87.

Wheat for July eased to $6.78 from $7.59.

RUBBER: Malaysian prices fell, taking their cues from the Tokyo Commodity Exchange, the stronger dollar and supply concerns.

The Malaysian Rubber Board's benchmark SMR20 dropped to 460.10 US cents per kilo from 466.55 US cents last week.

© 2011 AFP

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