Commodity prices jump on EU debt deal

28th October 2011, Comments 0 comments

Commodity prices rallied this week after a breakthrough deal to try and resolve the eurozone debt crisis helped ease stubborn concerns that it could spark a new global recession.

"The decisions at the EU summit early Thursday led to a rise in risk appetite on financial markets and triggered a price rally which spread to virtually all commodities," said Commerzbank analyst Carsten Fritsch.

"A considerably weaker US dollar has also fuelled the price rally," he added.

EU leaders cut a crucial deal as they sought to prevent the debt crisis snaring the likes of Italy and Spain which would likely sink the euro and push the global economy back into the doldrums.

The news sent the European single currency flying above $1.42 for the first time in nearly eight weeks.

A weaker US unit makes dollar-denominated commodities cheaper for buyers using other currencies and this in turn tends to stimulate demand and spark higher prices.

Many raw materials also found support on Thursday when the first official estimate of third quarter US economic growth came in at a better-than-expected 2.5 percent, easing fears of a double-dip recession in the world's largest economy.

OIL: Prices rocketed more than $3 on Thursday after news of the EU debt deal, with sentiment also boosted by better-than-expected economic growth in top crude consumer the United States.

Prices trimmed their gains on Friday as many investors chose to take profits.

"The outcome of eurozone talks in Brussels put wind in the sails of oil prices, commodity markets and shares," said analysts at the Vienna-based JBC Energy consultancy.

"The eurozone deal has provided short-term respite -- but the zone is far from being out of the woods and the threat of recession looms large."

Global markets have been plagued by the eurozone debt crisis for months amid concern that the debacle could push the world economy into another vicious downturn -- which would slash demand for oil.

EU leaders agreed to restructure Greek debt, bolster the banks which would take losses as a result, help other countries struggling with debt and improving the bloc's bailout fund.

By late Friday on London's Intercontinental Exchange, Brent North Sea crude for delivery in December stood at $110.10 a barrel compared with $110.77 a week earlier.

On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for December, soared to $92.89 from $87.93.

PRECIOUS METALS: Prices rose as traders drew comfort from the positive eurozone summit, with gold, silver and platinum scoring one-month highs on Friday.

"The entire complex, including gold, received a boost following the EU summit delivering an agreement, which was broadly in line with expectations," said Barclays Capital analyst Suki Cooper.

"Although a significant number of uncertainties remain, the market received the news positively."

By late Friday on the London Bullion Market, gold rose to $1,741 an ounce from $1,642.50 the previous week.

Silver jumped to $35.42 an ounce from $30.80.

On the London Platinum and Palladium Market, platinum leapt to $1,629 an ounce from $1,510.

Palladium increased to $659 an ounce from $616.

BASE METALS: Star performer copper soared by more than 15 percent to hit $8,280 per tonne -- a level last seen on September 21 -- on the back of the eurozone debt deal, upbeat Chinese data and more supply problems in Indonesia.

"The recovery in (copper) prices was helped by the pick-up in ... Chinas (manufacturing sector in) October, which eased fears that the economy of the world's largest consumer of copper is heading for a hard landing," said Capital Economics analyst Ross Strachan.

He added: "The other major boost has come from the announcement of the bare bones of a rescue package for the eurozone."

Manufacturing activity in China hit a five-month high in October.

The preliminary HSBC purchasing managers' index (PMI) stood at 51.1 in October, up from 49.9 in September and the first time it has gone above 50 since June.

A reading above 50 indicates the sector is expanding, while a reading below 50 suggests a contraction.

Copper drew more strength after US miner Freeport-McMoRan on Wednesday declared force majeure on shipments from its strike-hit Indonesian gold and copper Grasberg mine so it can avoid liability on existing customer orders.

Around 8,000 of Freeport Indonesia's 23,000 workers have been on strike for more than a month in restive Papua province, demanding drastic wage increases and better working conditions.

By late Friday on the LME, copper for delivery in three months spiked to $8,030 a tonne from $7,163 the previous week.

Three-month aluminium rose to $2,238 a tonne from $2,137.

Three-month lead gained to $2,011 a tonne from $1,910.

Three-month tin grew to $21,850 a tonne from $21,799.

Three-month zinc climbed to $1,928 a tonne from $1,815.

Three-month nickel advanced to $19,769 a tonne from $18,850.

COCOA: Cocoa advanced in line with other rising markets.

"Agricultural commodities closed higher ... amid broad-based and widespread gains across commodities and gains in external markets which were spurred by the agreement from the EU summit," said Barclays Capital analyst Sudakshina Unnikrishnan.

By Friday on LIFFE, London's futures exchange, cocoa for delivery in December rose to £1,701 a tonne from £1,678 the previous week.

In New York on the NYBOT-ICE, cocoa for December increased to $2,737 a tonne from $2,583.

COFFEE: Coffee prices were higher.

By Friday on LIFFE, Robusta for delivery in January rose to $1,878 a tonne from $1,856 a week earlier for the November contract.

On NYBOT-ICE, Arabica for December firmed to 238 US cents a pound from 236.40 US cents.

SUGAR: Prices were narrowly mixed as traders eyed tight global supplies.

By Friday on NYBOT-ICE, the price of unrefined sugar for delivery in March eased to 26.76 US cents a pound from 26.91 cents a week earlier.

On LIFFE, the price of a tonne of white sugar for December stood at £707, up from £700.50.

GRAINS AND SOYA: Maize, wheat and soya all rose.

By Friday on the Chicago Board of Trade, maize for delivery in December firmed to $6.55 a bushel from $6.49 a week earlier.

Wheat for December increased to $6.40 a bushel from $6.32.

November-dated soyabean meal -- used in animal feed -- advanced to $12.27 a bushel from $12.12.

RUBBER: Prices increased as floods in top rubber producer Thailand hit supplies. Further support came from the bullish performance of regional markets, including the Tokyo Commodity Exchange.

Floods that have sparked an exodus from the Thai capital crept closer to the city centre on Friday as the government considered cutting through roads blocking the path of the water.

The city of 12 million people is on heightened alert because of threats on two fronts -- a seasonal high tide this weekend that is expected to coincide with the arrival of a mass of water from the flood-stricken central plains.

The Malaysian Rubber Board's benchmark SMR20 advanced to 404.35 US cents a kilo from 392.25 the previous week.

© 2011 AFP

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