Commodity markets consumed by Japan disaster, Libya unrest

18th March 2011, Comments 0 comments

Commodity prices endured great volatility this week as traders in oil, metals and grains reacted to Japan's nuclear disaster and mounting unrest in Libya.

OIL: World oil prices steadied as instability in oil-producing regions offset the prospect of lower crude demand in Japan, analysts said.

"Prices continue to be underpinned by events in the Middle East, especially Libya and Bahrain," said CMC Markets analyst Michael Hewson.

Victor Shum of Purvin and Gertz energy consultants in Singapore, noted the "volatility ... as the markets weigh the importance of the nuclear crisis in Japan and unrest in the Middle East."

Emphasising the week's volatility, Brent oil dived $3 on Friday immediately after major crude exporter Libya called a ceasefire with rebels, easing fears about possible damage to its energy facilities.

Ahead of the ceasefire announcement, crude futures rose in response to the United Nations sanctioning air strikes against Libya, where popular unrest has practically halted exports of its crude to the West.

"The potential damage to the country's oil infrastructure is obviously bullish (supportive) for oil prices," PVM brokers analyst Tamas Varga said of Libya.

Libya responded to the UN deal by announcing Friday an immediate ceasefire in the month-long battle against rebels fighting to overthrow Moamer Kadhafi, saying it was complying with demands from the Security Council.

A coalition of Western nations geared up Friday to launch quick air strikes against the north African country after the UN approved military action to stop veteran leader Moamer Kadhafi from crushing insurgents.

As NATO gathered to discuss its next moves, the United States, Britain and France were expected to scramble fighter jets against Kadhafi's forces after they secured the UN Security Council's blessing.

Libya was producing 1.69 million barrels a day before its recent unrest, according to the International Energy Agency, of which 1.2 million were exported, mostly to Europe.

However the IEA said this week that Libya's oil exports would "remain off the market for a considerable time".

Unrest in oil-producing Bahrain was also contributing to the market jitters.

Standard & Poor's said Friday it had cut Bahrain's long- and short-term local and foreign currency sovereign credit ratings because of mounting political unrest in the Gulf monarchy.

Bahrain's Shiite opposition meanwhile called for fresh demonstrations after Friday prayers, in defiance of martial law and a violent crackdown by the US-backed kingdom's security forces.

Markets were also tracking the latest developments in Japan, the world's third biggest importer of oil and which is struggling to overcome a nuclear disaster following last week's devastating earthquake and tsunami.

"Four percent of Japan's power plant capacities are offline on a sustainable basis after nuclear power plants have been shut down, meaning that Japan's energy requirements have to be covered to a greater extent by fossil fuels such as oil, coal and gas," Commerzbank analysts said in a research note to clients. In recent days, the price of uranium -- used to generate nuclear power -- has slumped by a quarter while the cost of coal and gas have soared more than 10 percent.

"It is odd to think of Europe or Japan as potential growth markets for thermal coal. However, with nuclear power production apparently moving into reverse in these two regions, the outlook for fossil fuels such as thermal coal, in addition to natural gas and oil, appears much more promising," Deutsche Bank analysts said.

Brent crude oil plunged almost $6 at one stage on Tuesday, as fears grew over the potential nuclear disaster in Japan.

Analysts said this was because major radiation leaks would likely hamper reconstruction and economic activity in Japan, the world's third biggest economy and that in turn would weigh on the country's oil consumption.

By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in May stood at $113.29 a barrel compared with $113.50 for the April contract one week earlier.

On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for April, gained to $100.22 a barrel from $99.86 a week earlier.

PRECIOUS METALS: Gold was unable to benefit from its traditional safe haven status until late in the week amid escalating unrest in Libya.

"Paradoxically, the ultimate safe haven asset suffered alongside equities... on fears over Japan's nuclear fallout," said VTB Capital analyst Andrey Kryuchenkov.

The previous week, gold had hit a record peak of $1,444.95 per ounce, dragging sister metal silver to another 30-year high at $36.75.

The precious metals usually draw strength in times of geopolitical and economic turmoil because they are regarded as a safe store of value.

By late Friday on the London Bullion Market, gold rose to $1,420 an ounce from $1,411.50 a week earlier.

Silver increased to $35.15 an ounce from $34.10.

On the London Platinum and Palladium Market, platinum dipped to $1,720 an ounce from $1,777.

Palladium fell to $727 an ounce from $754.

BASE METALS: Tin and nickel prices slumped 6.0 percent early in the week on worries about a potential slide in Japanese demand. Japan is the world's second biggest consumer of nickel and third largest of tin.

A drop in Indonesia tin exports "was more than compensated by the expected lower demand from Japan," said analysts at Commerzbank.

"The Japanese earthquake has been the largest driver of the base metal complex over the past week," said analysts at Barclays Capital.

Base metal prices mostly recovered by the end of the week amid geopolitical unrest.

"Lead is viewed as the immediate beneficiary due to the need for generators and batteries in light of power problems.

"Other metals such as aluminium, copper and zinc should also benefit from reconstruction of buildings and power network, but over a longer timeframe are also likely to suffer from short-term cutbacks in industrial activity," they added.

By late Friday on the London Metal Exchange (LME), copper for delivery in three months grew to $9,550.50 a tonne from $9,163.25 a week earlier.

Three-month aluminium increased to $2,555 a tonne from $2,547.

Three-month lead climbed to $2,679 a tonne from $2,417.

Three-month tin fell to $29,550 a tonne from $29,700.

Three-month zinc gained to $2,324 a tonne from $2,271.50.

Three-month nickel expanded to $26,750 a tonne from $26,112.

SUGAR: Sugar futures fell for a second week running.

By Friday on the New York Board of Trade (NYBOT), the price of unrefined sugar for delivery in May slipped to 27.43 US cents a pound from 28.53 cents a week earlier.

On LIFFE, London's futures exchange, the price of a tonne of white sugar for May decreased to £707.60 from £717.60 a week earlier.

COCOA: Prices dropped despite fresh unrest in leading cocoa producer Ivory Coast.

Leading organisations in the global cocoa industry on Tuesday expressed their "increasing concern" over the violence in Ivory Coast, the biggest producer of the commodity used to make chocolate.

The European Cocoa Association and confectionery grouping Caobisco, both based in Brussels, and the Federation of Cocoa Commerce in Britain said that they "deeply regret" that a solution to the unrest had not been reached.

Violence has escalated in Abidjan in the once booming west African country where at least 400 have been killed since a disputed election, according to the United Nations.

By Friday on LIFFE, cocoa for May retreated to £2,049 a tonne from £2,207 a week earlier.

On NYBOT, cocoa for delivery in May slid to $3,206 a tonne from $3,383 a week earlier.

GRAINS AND SOYA: Prices ended higher after an topsy-turvy week.

"There has been no palpable shift in market fundamentals over the past week, but a combination of risk aversion, geopolitical tensions, high oil prices and their implications on global growth and the earthquake in Japan have all proved an inhospitable environment for prices," said Barclays Capital analysts.

By Friday on the Chicago Board of Trade, May-dated soyabean meal -- used in animal feed -- rose to $13.48 a bushel from $13.34 a week earlier.

Maize for delivery in May gained to $6.73 a bushel from $6.64.

Wheat for May climbed to $7.29 from $7.18.

COFFEE: Prices hit three-year highs at $2,672 a tonne in London owing to low stocks of Robusta-quality coffee, traders said.

By Friday on LIFFE, Robusta for delivery in May grew to $2,612 a tonne from $2,423 a week earlier.

On NYBOT, Arabica for delivery in May eased to 275.95 US cents a pound from 276.20 cents a week earlier.

RUBBER: Malaysian rubber prices extended loses owing to weak demand from major importers such as China.

By Friday, the Malaysian Rubber Board's benchmark SMR20 fell to 447.25 US cents a kilo from 449.20 cents one week earlier.

© 2011 AFP

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