Losses were the name of the game across many commodities this week. Crude oil prices plunged lower still with Brent hitting a four-year low, and the U.S. benchmark, West Texas Intermediate, recorded a three-year drop. Gold has come under severe pressure, slumping to a 3.5-year low, while agricultural commodities such as cocoa, coffee and sugar as well as cotton sustained further losses this week.
Crude oil prices came under further pressure after Saudi Arabia lowered its official selling prices for the U.S. for December shipments. Brent North Sea crude for December delivery on London’s ICE Futures Europe exchange slumped as low as $82.08 a barrel following the reports of the Saudi price cut on Nov. 4 while the U.S. benchmark, West Texas Intermediate (WTI) for settlement in the same month on the New York Mercantile Exchange (Nymex) plunged to $75.88 a barrel. These price points marked four- and three-year lows respectively for the crude oil price points.
Analysts said the Saudi decision was aimed at defending its market share in the U.S. market and cutting demand for U.S. shale oil. Interestingly, however, Saudi Arabia was reported to have hiked its prices for its crude sales to other destinations, including Asia, where it cut prices last month for November shipments.
According to some analysts, the Saudi move suggests it’s unlikely that an agreement will be reached to cut output at the upcoming Nov. 27 OPEC production meeting in Vienna.
Crude oil prices on London and New York exchanges, however, enjoyed a fillip at midweek as reports circulated that an explosion had occurred on an oil pipeline in Saudi Arabia. Initial fears were that it was an act of terrorism. Brent crude for December surged to $84.45 a barrel on the reports on Nov. 5, while WTI for December hit a high of $79.35 a barrel. Both benchmarks settled lower after Saudi officials reported a fire had broken out during repair work and no act of terrorism was involved.
Brent for December delivery finished $0.13 up at $82.95 a barrel while WTI for December settled $1.49 higher at $78.68 a barrel. The WTI was also helped by a lower-than-expected increase in crude stocks in the U.S. and a fall in inventories at the key Cushing, Oklahoma, storage hub. The U.S. Energy Information Administration (EIA) on Nov. 5 reported the country’s crude stocks increased by half a million barrels last week while crude inventories decreased at the Cushing hub to 20.8 million barrels from 21.4 million barrels the previous week.
Gold slumped to its lowest level since July 2010 on Oct. 31 and has since extended that fall to a 3.5-year low. The most-active contract – December – on the Comex division of Nymex dropped as low as $1,137.1 a troy ounce on Nov. 5 before trimming losses to settle at $1,145.7. This marks a $25.90 loss on the month to date and a $52.90 slide since close on Oct. 30.
Gold’s fall comes amid optimism about the strength of the U.S. economy which has further underpinned the view that the Federal Reserve could raise interest rates sooner rather than later. This follows the Fed’s comments last week after its Federal Open Market Committee meeting and the end of its monthly bond-buying program. The continued appreciation of the U.S. dollar against a number of other major currencies and fresh records in U.S. stocks also have continued to dampen investor appetite for the precious metal as a safe haven.
“In terms of our outlook, both oil and gold seem to be sharing the same fate, namely oversupplied markets with little in the way of either fund or physical buying,” INTL FCStone said in its daily Precious Metals Report on Nov. 4, adding that the stronger dollar also is weighing on both complexes.
Platinum and palladium are also struggling. Several things are putting pressure on platinum and palladium prices. These include gold’s downward spiral, the strong U.S. dollar — which makes dollar-priced commodities more expensive for holders of other currencies — and concerns that demand is slowing in China and Europe for the two platinum group metals (pgms), particularly from the auto-sector.
U.S. platinum futures are trading near the five-year low recorded on Oct. 5, with the January contract on Comex dropping below $1,200 an ounce again on Nov. 5. The nearby contract had slid below the $1,200 level on Oct. 6 to touch $1,191 an ounce, the lowest since July 2009.
This week, on Nov. 5 platinum for January delivery on Comex slid as low as $1,197.3 an ounce before trimming losses to end at $1,210.6, down $14.1 on the day and $24.6 on the week so far.
U.S. palladium futures slumped as low as $755.10 an ounce, basis the December contract, on Nov. 5 before settling at $757.85, down $32.80 on the day and $33.95 below Oct. 31’s close at $791.80 an ounce.
Meanwhile, South Africa’s Department of Mineral Resources on Nov. 5 gave final approval for Canada’s Ivanhoe Mines to start building one of the world’s biggest platinum mines.
The mining right, or licence, will allow Ivanhoe to mine and process platinum-group metals and gold, among others, at its Platreef discovery near Mokopane in South Africa’s Limpopo province for a renewable 30-year period, the company said in a statement.
Based on a preliminary economic assessment released in March 2014, a base-case operation mining 8 million tonnes per year could produce 785,000 ounces of platinum, palladium, rhodium and gold annually. According to the company, the $1.6 billion project would allow it to become Africa’s lowest-cost producer of pgms.
Site work has been suspended since May 26 pending finalization of the mining right.
Ivanhoe already has copper and copper-zinc interests in the Democratic Republic of Congo and gold exploration interests in Gabon.
Cocoa futures recorded their worst performance in almost three years in October, ending the month at a 5.5-month low as strong crop prospects in top two producers Côte d’Ivoire and Ghana plus a rising U.S. dollar sparked investor selling.
The outlook for the two countries’ 2014-2015 crops is positive following good weather, analysts said. The main harvests in Côte d’Ivoire and Ghana, which together account for about 60 percent of world cocoa supplies, are now under way and new-season beans are starting to arrive on the market.
December cocoa on New York’s ICE Futures U.S. exchange fell $47 to settle at $2,899 a tonne on Oct. 31 after touching $2,888, the lowest for a front-month contract since mid-May. A fresh 5.5-month low was to follow on the first trading day of November, with ICE December cocoa dropping to $2,859 a tonne before closing at $2,861, $38 down on the day.
Liffe December cocoa futures in London finished October £20 lower at £1,910 a tonne and on Nov. 3 shed a further £21 to settle at £1,889 a tonne. Both ICE and Liffe cocoa subsequently trimmed losses to end a tad higher at midweek, with December ICE cocoa settling at $2,871 a tonne on Nov. 5 and Liffe cocoa for settlement in the same month at £1,896.
Front-month ICE cocoa ended Oct. 12 percent lower on the month with the biggest monthly decline since November 2011. Futures prices have fallen sharply from the 3.5-year highs reached in late September after a 22-percent climb that month. The market since has increasingly factored in fears of the Ebola virus spreading to Côte d’Ivoire and second-biggest cocoa grower Ghana.
However, analysts believe uncertainty will remain until at least the end of 2014 about Ebola spreading into West Africa’s major cocoa producing countries and its potential to disrupt cocoa supplies from those nations.
“If Ebola spreads into the two major cocoa producers, Côte d’Ivoire and Ghana, the impact on cocoa prices will be substantial,” warned ABN Amro in its latest Quarterly Commodity Outlook, published Oct. 30. “Embargoes could be imposed, workers could be unable to move around the country, domestic transport could be disrupted and cocoa beans potentially delayed in reaching the ports for export.”
Assuming Ebola does not reach these countries, the effects of the record 2013-2014 production and healthy forecasts for 2015 will only be seen in the course of 2015 itself, the bank said.
“Healthy supply numbers for 2013-2014 and beneficial conditions during this season’s crucial growing phase bode well,” ABN Amro said.
According to the bank’s report, Côte d’Ivoire saw a record 1.741 million tonnes of port arrivals in 2013-2014 (Oct. 1 to Sept. 30), up from 1.449 million tonnes. Quoting International Cocoa Organization (ICCO) data, Ghana’s port arrivals are estimated to total close to 920,000 tonnes for 2013-2014, up 85,000 tonnes year-on-year.
Assuming Ebola does not spread to either Côte d’Ivoire or Ghana, ABN Amro forecasts an easing in cocoa prices, projecting futures averaging $2,750 a tonne in 2015 against an average $3,100 for 2014.
Raw sugar futures came under further pressure from a weakening Brazilian real against the U.S. dollar and ample global supplies. New York raw sugar for March delivery settled at 15.51 cents a pound on ICE Futures U.S. on Nov. 5 after dipping to 15.50 cents, and setting a fresh one-month low for the front-month contract. March raw sugar on ICE had finished October a whisker above 16 cents a pound at 16.04 cents.
According to ABN Amro, it is “hard to see any upside” in sugar prices in the coming months, and unless concerns about an El Niño re-emerge, prices will remain under pressure as a result of lingering oversupply, the bank said in its latest Quarterly Commodity Outlook.
However, the bank believes there were could be more positive longer-term price prospects for sugar, and recommended to investors to “buy the sugar dip into 2015.”
In the longer term, the impact of the drought earlier this year on Brazil’s cane crop and fires, as well as the aging canes and decreased husbandry “could hurt sugar production even further,” the bank said.
“For the current crop, the Brazil cane crush is already 8.5 percent below last year’s record crop,” the bank said in its report.”More tightening of the global production surplus may result in a future deficit, leading to rising sugar prices.”
In coffee markets, the most-active March arabica coffee contract on ICE Futures U.S. fell to a one-month low of $1.864 a pound on Nov. 4 before recovering to settle at $1.925. March arabica finished a further 1.95 cents down at $1.9055 the following day.
Arabica coffee futures have come under pressure in the past two weeks on the arrival of rains in top grower Brazil’s main coffee-growing areas in the country’s central and southern regions after a period of dry weather. Reuters, quoting local weather service, Somar, reported normal spring rains are expected this month after the extremely dry conditions of late.
ABN Amro’s expectations for ICE arabica futures averaging 170 cents a pound next year are down from the bank’s average 180 cents for 2014 — a year that saw arabica futures soar to 2.5-year highs on drought damage to this year’s (2014-2015) Brazilian crop and worries about the impact on the country’s 2015-2016 crop.
“The big unknown for arabica coffee will remain the effects of the 2014 drought on the 2015-2016 Brazilian crop,” the bank said.
Unlike arabica coffee, there are few concerns about any shortage of robusta beans. With a big crop expected in Vietnam, the world’s largest producer of robusta coffee beans, and better production in Indonesia, the robusta market is well supplied.
January robusta coffee on London’s NYSE Liffe exchange was $13 up at $2,026 a tonne on Nov. 5, but $22 down from October’s close at £2,048 a tonne.
Among other agricultural commodities, cotton futures posted sharp losses this week, with the most-active December cotton contract on ICE Futures U.S. finishing 0.09 cents down at 62.71 cents a pound on Nov. 5 after dropping as low as 62.02 cents. The fiber had rallied to a three-week high of 65.99 cents on Oct. 29 on short-covering and perceived tight nearby supplies, with the front-month contract ending Oct. 5 percent up on the month at 64.45 cents a pound.
For the most part, however, cotton prices have been under pressure in recent months, with ICE December cotton recording a five-year low of 60.83 cents a pound on Sept. 24.
Prices have been falling on the prospect of higher global production and declining import demand by top consumer and importer, China. Beijing is scrapping its cotton stockpiling program that has run for three years and led to significant import buying by the country in favor of direct farmer subsidies. This week, Beijing set the price for its cotton subsidy scheme outside of China’s main growing province of Xinjiang, where around half the country’s cotton is grown.
The subsidies for the nine provinces outside of Xinjiang is significantly lower than for the main cotton-growing province, leading analysts to expect a bigger fall in output in those nine provinces than had been initially expected.
Market observers in recent weeks already had cut their forecasts of China’s cotton imports for 2014-2015 (Aug. 1-July 31). The analysis group Cotlook, which compiles the Cotlook A index and has offices in the U.K. and U.S., reduced its imports forecast to a 10-year low of 1.3 million tonnes from 1.9 million.
One of the highest forecasts is from the Washington, D.C.-based International Cotton Advisory Committee, which in early October stayed with a forecast of imports of 2 million tonnes for 2014-2015, still a 36-percent year-on-year decline.
While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.
