Commodity Blog

Posts Tagged ‘supply and demand’

July sugar exports from Brazil (the world’s biggest sugarcane producers) climbed to the maximum in eight previous months, pushing the market prices for this commodity down to 2-week minimum.

From the technical analysis point of view, the decline is finely justified as a correction that followed a sharp rally in July. That rally was induced by the rumors that Brazilian production will decline.

The market analysts point out the fact that the buyers are currently afraid of the tons of supply that may get into the market anytime. If that happens, supply may overwhelm any demand, sending the prices down the hill.

September sugar futures fell from $29.02 to $28.27 per 100 pounds or more than 2.5 percent as of 17:17 GMT on ICE today. It’s the lowest level since July 18.

Copper futures contract price fell today, influenced by several factors. First, the US debt-lifting and deficit-cutting agreement threatens to weaken the global consumption levels. Second, decreasing manufacturing PMI in US is hinting lower demand for industrial raw materials. And third, one of the biggest Chilean copper mines returned to its normal operation.

Last night, the Democrats and the Republicans reached an agreement regarding the US maximum debt limit, increasing it by $2.1 trillion and deciding to cut the budget deficit by $2.5 trillion during the next decade. While it should be considered a good event for the global markets, the even spurred fear among the investors that the global growth will slow down.

Manufacturing PMI (purchasing managers index), which indicates the industry sentiment, decreased by 4.4 percent in the United States (from 55.3 percent to 50.9 percent), signaling a declining demand for the industrial metals, including copper.

While the labor strikes continue at Chile’s biggest mine Escondida, the 24-hour strike has ended at country’s another mine — Doña Inés de Collahuasi. It accounts for about 3 percent of the global copper production.

Copper futures fell from $449.90 to $440.40 or about 2.1 percent as of 17:31 GMT on COMEX today. The daily low was reached at as low as $437.60 — the lowest level since last Monday.

Copper corrected after yesterday’s growth today, as the report on June durable goods orders in the United States disappointed investors, signaling a decreasing demand.

Durable goods orders, which considerably increase the consumption of copper, fell by 2.1 percent in June, while a slight growth (0.3 percent) was expected by the markets. The report was a big disappointment for the copper bull traders, reducing the buying sentiment in the market.

Even the continuing strike at the world’s biggest copper mine Escondida (located in Chile and owned by BHP Billiton Ltd.) couldn’t prevent the industrial metal from dropping; though it probably reduced the extent of a decline. The situation with the mine is facing a dead-end, as the company’s officials are refusing to discuss with the workers.

Copper 3-month delivery futures contract fell from $447.20 to $444.05 per 100 lbs on COMEX as of 16:00 GMT today.

Crude oil dropped to the lowest level in four months today on the forecast of higher supply and lower demand. The US consumer spending stalled last month, signaling that demand in the biggest oil-consuming country may drop. The International Energy Agency said, after announcing on June 23 its plans to release 60 million barrels from the strategic reserves, that it’ll decide in 30 day whether to use the inventories again. August futures for crude oil delivery dropped $0.55 to $90.61 per barrel on NYMEX, the lowest prices level since February 18.

Gold slipped after oil declined. The drop of crude oil prices eased inflation pressure and reduced demand for the metal as an inflation-hedge. Hopes for positive outcome of the situation in Greece decreased attractiveness of gold as a safe haven. Spot price for gold fell 0.3 percent to $1,498.15 per ounce before trading at $1,500.18 as of 15:17 in Seoul.

Crude dropped after the International Energy Agency announced that it’s going to release the strategic reserves and on the speculation that demand from the US, the biggest user, will decline. The agency stated that it” release 2 million barrels per day for 30 days, starting next week. The prospect of increasing output from Saudi Arabia also contributed to the decline of crude.

The signs of slower economic growth in the US suggest about potential decline of demand for fuel. The jobless claims rose from 326,000 to 319,000 last week. The Federal Reserve decreased its growth forecast for this year to 2.7—2.9 percent this year, compared to April’s forecasts of 3.1—3.3 percent growth.

August contract for crude oil delivery fell by $4.30 to $91.11 per barrel in electronic trading on NYMEX. August Brent crude slipped $4.40 (3.9 percent) to $109.81 per barrel on ICE.

Corn jumped to a record as forecasts promise that adverse weather in the US will reduce supply, while the demand for the crop as livestock feed and for ethanol production will increase. The US Army Corps of Engineers reported that floods affected as much as 6.8 million acres of farmland across the South and Midwest, reducing prospects for yield. The government report said that ethanol production advanced 0.7 percent to an average of 915,000 barrels per day, the highest level since January.

The US Department of Agriculture decreased its forecast for the global stockpiles of corn next year to 111.89 metric million tons from the May forecast of 129.14 million tons. Experts predicted that the harvest in 2012 will be smallest since 1996.

July futures for delivery of corn gained as much as $0.015 (0.2 percent) to $7.87 as of 13:15 on CBoT. The price reached earlier the all-time high of $7.9975. The previous record was $7.9925 in June 2008. The price climbed 4.4 percent this week. Last year prices more than doubled because of adverse weather.

Copper gained on the speculation that supply will decline and as weaker dollar boosted prices of commodities. Contract for delivery of copper in three months went up 0.2 percent to $9,157.50 on LME

Gold metals fell as the euro gained, reducing demand for safer assets, after the European Central Bank supported plan for rollover of the Greek bonds. August futures for delivery of gold slipped $3.20 (0.2 percent) to $1,544 on COMEX. July silver futures advanced $0.264 (0.7 percent) to $37.046 per ounce.

Oil jumped on the speculation that increasing production quotas in the Organization of Petroleum Exporting Countries will reduce spare capacity. The US Energy Department revised its forecast for the global usage of oil this year to 88.43 million barrels per day from 88.08 million in May. July delivery for crude oil traded at $99.09 per barrel on NYMEX. July futures for Brent crude delivery rose $2.30 (2 percent) to $116.78 per barrel on ICE.

Platinum was underperforming compared to gold and silver until recently, rallying less than these precious metals in April. That turned out to be an unexpected advantage as weaker rally led to smaller drop, at least compared to silver. But now the metal looks trendless and it’ll be important to see at the driving forces of its moves to understand its potential performance.

For a start, let’s look at the difference of gold and platinum in relation to markets. Gold is a precious metal, its main value comes from investors, not physical demand, and therefore the yellow metal is driven by speculative demand and market sentiment. Platinum is viewed as generally industrial metal and is driven by industrial demand and other fundamentals. Thus, we can expect platinum-to-gold ratio to decrease over time as fundamentals, particularly outlook for the global recovery, can change drastically and currently not very positive for platinum. On the contrary, the demand for safer assets, including gold, remains in place. It can weaken and strengthen, but current economic environment doesn’t let us believe that speculative demand will go away anytime soon. That’s not necessary bad for platinum as it’s also often helped by the demand for safety, just not as much as gold.

Outlook for supply and demand varies among analysts. GFMS in its Platinum & Palladium Survey 2011, cited by Mineweb, predict that increase of supply will outpace growth of demand. ResourceInvestor said that platinum production growth in 2010 was 0.6 percent, while consumption surged 16 percent, and thought that disparity can even wide this year as production in South Africa may stall because of miners’ strikes and underinvestment.

Another important thing to consider is the usage of the metal in automobile industry. This factor currently is negative for platinum as the slowing US economy, problems in the European Union and, particularly, consequences of the natural disaster in Japan don’t make good for the car production and demand. Oil prices also affect this industry as higher prices decrease usage of cars. The recent spike of prices was negative for the platinum, yet falling oil isn’t necessary good for the metal as the oil drops often on poor macroeconomic fundamentals, which are also bad for platinum.

Now, after reviewing factors influencing platinum, can we predict future performance of the commodity? On the longer run, most economists agree, platinum looks attractive. The global recovery should help the demand from automobile industry, while turbulence of the world economy should support speculative demand. GFMS, even being skeptical for platinum demand in the near future, expect the metal to reach $1,900 by the end of this year. In the short-term, though, outlook remains clouded. Currently, the metal trades in a range between $1,745 and $1,800. If prices would manage to break any of these levels and stay outside the range for some time, we can expect significant move at the direction of a breakout. For now, it’s better to step aside from the metal and wait until the picture clears out and prices will establish a noticeable trend.

Sugar gained today for the fourth consecutive session on the speculation that production will fall, while demand continues to grow. According to Unica, the Brazilian Sugarcane Industry Association, the total amount of cane processed since the beginning of this year’s harvest in Brazil was 56.66 million tons as of May 15, 39.51 percent below 93.67 million tons for the same period in the previous year. The European Union and Mexico raised their import allowances this week. July delivery for raw sugar gained $0.0018 (0.8 percent) to $0.2287 per pound as of 9:52 on ICE.

Gold and silver advanced today as the dollar fell, increasing demand for commodities as alternative assets. The greenback slid 0.8 percent against the basket of six major currencies. The Thomson Reuters/Jefferies CRB Index of 19 raw materials headed for the third consecutive weekly gain. August contract for delivery of gold went up $9.70 (0.6 percent) to $1,533.50 by 10:41 on COMEX. July delivery for silver added $0.565 (1.5 percent) to $37.895 per ounce.

Coffee fell on the sign of falling demand. At the same time, supply increased and the ICE-monitored inventories posted the first weekly gain since October 2008, rising 1.2 percent in April. Rodrigo Costa, vice-president of institutional sales at Newedge said that the prices, offered by exporters for mild-bean, were the lowest in about three years. Contract for delivery of Arabica coffee in July fell $0.007 (0.2 percent) to $2.8755 per pound by 14:00 on ICE. Prices slipped 4.1 percent this week.

Silver ended this week posting the 27 percent drop, the biggest weekly decline since at least 1975. On the other hand, gold rebounded, ending three days of losses. The difference between the performance of the yellow metal and the white metal can be explained by the higher margin requirements for silver futures on COMEX. Futures for delivery of silver in July dropped $0.953 (2.6 percent) to $35.287 per ounce as of 14:11 on COMEX. June futures for gold delivery gained $10.20 (0.7 percent) to $1,491.60 per ounce.