Commodity Blog

Posts Tagged ‘base metals’

Copper gained on expectations that demand will rise after China, the largest consumer of the metal in the world, signaled that it might end yuan’s peg to dollar. Strong currency will allow more imports for China, including base metals, mainly nickel and copper. September futures for copper delivery gained $0.058 (2 percent) to $2.9595 per pound on COMEX.

Another commodity benefiting from the expected end of yuan’s peg was soybeans as increasing China’s purchasing power would allow the nation to buy more U.S. crops. China bought 120,000 metric tons of soybeans from U.S. exporters for delivery before August 31st. November futures for soybean delivery added $0.085 (0.9 percent) to $9.39 per bushel on CBoT.

Sugar futures gained on speculation that global demand will rise, spurring importers to increase their purchases. Philippines plans to import 100,000 metric tons of the sweetener over the next two weeks, while Egypt expected to purchase at least 50,000 tons of raw sugar. October delivery for raw sugar rose $0.0058 (3.8 percent) to $0.1596 per pound on ICE.

Soybeans reached the highest level in seven weeks after the report that China may continue its purchases of supplies from the U.S. The demand for the supplies from the U.S. rose as China stopped the soybean-oil imports from Argentina. The country may import 5.5 million metric tons in the next month. July futures for soybean delivery rose $0.0375 (0.4 percent) to $9.7925 per bushel as of 11:01 on the Chicago Board of Trade.

Copper gained on the weakening dollar and the recovery of the U.S.economy. U.S. retail sales rose in March more than forecast, signaling about the widening economic rebound. The U.S. currency dropped versus the basket of the six major currencies, making commodities more appealing as an inflation hedge. May futures for copper delivery gained $0.0075 (0.2 percent) to $3.608 per pound by 12:10 on NYMEX.

Wheat advanced after the dollar fell, spurring appeal of the grain to overseas buyers. The dollar slid 0.5 percent versus a basket of six major currencies. May futures for wheat delivery advanced $0.0525 (1.1 percent) to $4.845 per bushel by 9:54 on the Chicago Board of Trade.

Copper climbed to the two-week high as the weaker dollar boosted demand for commodities as an inflation hedge. Price also jumped as inventories of LME-monitored copper dropped to 528,050 metric tons, the lowest level since January 20th. Delivery for copper in three months climbed $108 (1.5 percent) to $7,413 a metric ton as of 17:59 on the LME.

Cocoa price slipped to the seven-month low on speculation that growing supplies will decrease demand. Hedge-funds and other speculators cut their bets on increasing prices by 21 percent in the week ended March 9th. May futures for cocoa delivery slipped $18 (0.6 percent) to $2,848 per metric ton on ICE.

Copper is an industrial metal important for housing construction. It’s also used in construction of refrigerators, automobiles, cell phones and other goods. Copper was steadily rising in the past year, but it experienced sharp decline through January to the beginning of February. Then, in the second half of February to March, the metal rebounded. What do analysts say about copper’s perspective? In fact, opinions vary on this matter.

There are voices supporting optimistic outlook for copper price. They are speculating about global economic recovery, supporting demand for the industrial metal. Data from the U.S., one of major copper consumer, about expanding economy especially supports optimism for copper performance, as healthy economy and decreasing jobless rate lead to more housing construction and, as a result, more copper demand. Reports about dwindling stockpiles of LME-monitored copper also can result in price increase. LME-monitored inventories of copper dropped to almost 540,000 metric tones, lowest amount since early February.

But many analysts are inclined to pessimistic view on copper ability to rise or even maintain current price level, some even were going as far as calling current price level “a bubble”. They point out that key reason for the metal’s outstanding performance was huge amount of copper imported by China, one of the world’s greatest consumer, causing copper price to double in 2009. In 2010 it turned out that China imported more copper than it really requires. And it seems that suggestion about demand for the metal rebounding after New Year holidays in China did not prove true. There is also concern that economic recovery may be slow and supply may exceed demand. Earthquake in Chile caused price surge at first but, while being harmful for copper output, didn’t affected copper production as strong as was expected.

So, how can we predict copper moves amid such uncertainty? First answer lies in the very nature of copper as industrial metal. Copper is tied very strongly with overall economical picture, so the world economy can suggest possible copper moves. If economy will continue to rebound, then copper will continue to go up. Another factor worthy consideration is a dollar. Commodities, including copper, are very dependent on the U.S. currency these days, so look for the greenback performance for suggestion where commodities may be heading. It’s also looks like copper performance is strongly correlated with the stock market, so you can plan your trade if you can predict where the stock market is heading.

Gold may slid after the dollar rebounded against the euro, cutting appeal of the metal as an alternative asset. The greenback rose on concern about Greece’s debts last month. Gold have tendency to move inversely to the U.S. currency.

Yet there are some factors that can support the metal’s price. Commodities’ prices may go up as U.S. economy advanced at a 5.9 percent annual rate in the fourth quarter, the greatest pace in six years. Chile earthquake boosted the base metals prices, possibly pushing other commodities up. Africa’s biggest gold mines may halt due strikes, decreasing supply of the precious metal.

April futures for gold delivery fell $1.20 (0.1 percent) to $1,117.70 per ounce by 11:28 on the Comex division of the New York Mercantile Exchange. Immediate delivery for gold was at $1,117.30 in London.

Silver has history of being a traditional store of value. It is also used in industry, medicine, photography, jewelry manufacturing and in the making of coins. But should investors consider this precious metal when devising their trading strategies these days, when everyone’s attention seems to turn to gold, and how the commodity will perform in the future?

Analysts predict that silver will follow gold performance, which means it should steadily rise in 2010. It is not unexpected if we’ll recall the fact that most factors favorable for gold, like declining dollar and demand for commodities as investment assets, are also bullish for other precious metals, including silver. But, what’s even more interesting, some factors, that are bearish for gold, are in the same time favorable for silver. Just think how many investors and consumers will be repelled from gold by its skyrocketing price. And all these people may turn their attention in silver.

There are still some factors which are bearish for silver. With widespread use of digital photography demand for silver in photography industry was diminishing at pace around 10% a year and even 16% in 2008. Yet this decline in demand can be easily offset by demand from other industries like medicine, where silver used because of its antibacterial qualities. And while new technologies are replacing the old, silver is finding new applications, laptops and cell phones being the examples of modern technologies requiring silver.

Demand from industry rise as economy rebounds. Will supply satisfy this demand? It is not likely. It is true that output in China Russia, Mexico, Peru, Australia, Turkey and Bolivia is growing. But about 80% of silver are mined as a byproduct of other base metals and there are only a few pure silver mines left, with their reserves are depleting. And we should remember that most silver is not recycled, like gold, as it has much lower value. Therefore silver is gone forever after it is used.

Demand for silver is rising while stockpiles are dwindling. Analysts estimate silver price in 2010 in the range from $25 to $27.50. But as silver is greatly undervalued compared to gold, we can expect even greater increase in price of the precious metal in the future years as trader turn their attention to this less expensive but quite profitable commodity.

Base metal share prices are soaring this year as investors look for growth from China and India, but the recovery in commodity prices could be slow.
“With several uncertainties still surrounding the global financial system, the recovery will likely be later than originally thought, and much more shallow,” said Dina Cover, an economist with TD Securities Inc. in a report to clients.
TD Securities expects its TD Commodity Index will rise 25 per cent through 2010, which is less than half the rate it had previously forecast. “Excluding energy, the index will advance by a more muted 8 per cent (previously 22 per cent) next year.” Oil prices are forecast to rise almost 40 per cent.
Realization that world economic growth will fall short of expectations could result in a further 7-per-cent decline in the commodity index during the second and third quarters of 2009, Ms. Cover said.
The base metal stocks could be vulnerable. The S&P/TSX metals and mining index has climbed 68 per cent from depressed levels this year, compared with only a 1-per-cent rise in the S&P/TSX.
“While it is the case that production has been curbed in recent months, these curtailments have not prevented inventories from growing dramatically,” she said.
The rise in the investment demand may also be more tepid than expected. Ms. Cover predicts investors will gravitate to equities rather than making direct investments in commodities over the next 12 to 18 months. “Equity markets, in particular, will be an attractive lure for investor flows once the global economy begins to recover,” she said. “They have a major advantage in that they pay an income stream.”
However, by the end of 2010, TD expects zinc prices could increase almost 40 per cent, nickel and aluminum almost 20 per cent and copper 15 per cent. Galvanized steel producers, which use zinc, have been holding inventories in check.
Much of the recent investor enthusiasm for lead, zinc, aluminum and nickel stems from the rise in copper prices, one of the most economically sensitive metals.
Copper has increased to $1.94 (U.S.) a pound from a low of $1.26 a pound late last year. Scotia Capital Inc. estimates the average break-even cost for copper, including depreciation and interest expenses, is $1.36 a pound.
However, some of that strength stems from buying by China’s State Reserve Bureau, which could exit the market, causing a quick price drop. “Copper prices … likely have the most room to fall, while the rest of the base metal prices are already well below [their] marginal cost of production,” Ms. Cover said.
Although demand for copper will be poor and prices may fall over the next few months, it is “unlikely to test recent lows as financial conditions are improving and secondary supplies are sliding due to relatively low prices,” said Bart Melek, global commodity strategist for BMO Nesbitt Burns Inc.