Commodity prices soar as Fed launches QE3
LONDON, September 16, 2012 Commodities surged this week, with many striking multi-month peaks after the Federal Reserve embarked upon new stimulus plans to boost the US economy, a major consumer of raw materials.
Global markets rallied after the Fed said Thursday it would start a third programme to purchase $40-billion per month in mortgage-backed bonds—known more commonly as quantitative easing (QE3). “As the Fed embarks on a third round of quantitative easing, risky assets are rallying hard,” said Barclays Capital analyst Kevin Norrish.
The US central bank added that it would continue with the scheme until it saw substantial improvement in the jobs market. It also pledged to keep benchmark interest rates at ultra-low levels until at least mid-2015.
The news sent the euro soaring above $1.31 to a new four-month high. The weaker greenback boosts dollar-priced commodities, which become cheaper for buyers using stronger currencies. That tends to stimulate demand.
Analysts said dollar was being hit by the prospect of higher US inflation caused by the stimulus. The euro also won a boost this week from German court approval for a new 500-billion-euro (645-billion-dollar) firewall and fiscal pact, clearing a key hurdle in solving the eurozone debt crisis.
OIL: Prices hit four-month highs on news of more stimulus measures in the world’s largest crude consuming nation, and on the back of ongoing geopolitical tensions in the Middle East.
Brent North Sea crude soared to $117.95 a barrel, touching the highest level since early May. New York’s West Texas Intermediate (WTI) surged to a similar peak at $100.42.
“The Fed’s announcement has caused crude oil prices to climb to multi-month highs,” said Commerzbank analyst Carsten Fritsch.
While the announcement had been expected, dealers cheered the fact that the central bank said it will continue with the policy until it feels the economy is strong enough. Crude futures also jumped higher in the wake of violent protests touched off by a film mocking Islam that was posted on the Internet. Washington’s ambassador to Libya was killed during a mob attack in the city of Benghazi on Tuesday.
Demonstrations have spread across the oil-rich Middle East and further afield, including to Bangladesh, Iran, Iraq, Israel, the Gaza Strip, Kuwait, Sudan, Tunisia and Yemen.
“Supply risks are lending psychological support” to global oil prices, added Fritsch.
“Renewed anti-American protests are expected in Arab countries today after the US ambassador was killed in Libya two days ago and the US embassy in Yemen was stormed yesterday. “This region, which is so crucial to the supply of oil, is thus far from stable, something that is likely to give rise to a lasting risk premium.”
Added to the volatile geopolitical backdrop, traders remain deeply concerned over key crude producer Iran’s nuclear ambitions.
By late Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in October leapt to $116.68 a barrel from $112.93 a week earlier.
On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for October rose to $98.87 a barrel compared with $94.81 the previous week.
PRECIOUS METALS: Gold surged to a six-month high on the back of the Fed stimulus, while platinum was propelled by fresh labour unrest in key producer South Africa.
“The gold price rose … and looks set to continue its upward trajectory in the current economic climate as an increasingly inflationary environment in the United States is supportive of a strong gold price going forwards,” said Westhouse Securities analyst Rob Broke.
Gold is seen as a good hedge against inflation and also takes on a haven status in times of economic unrest.
The glamorous metal raced as high as $1,778 per ounce, which was the highest level since February 29. Silver meanwhile jumped to $34.94, last reached in March. At the same time, platinum soared to $1,715.12 an ounce—also last seen on February 29.
“The (platinum) price has rebounded strongly since mid-August, up by more than 20 percent to $1,700, largely on news of severe supply disruptions in South Africa,” said BNP Paribas analyst Anne-Laure Tremblay.
The world’s number four platinum producer Aquarius Platinum on Friday halted operations at a South African mine as rising unrest also forced top ferrochrome company Xstrata to shut down a chrome plant.
Police used stun grenades to disperse 1,500 protesters who had gathered at Aquarius and arrested seven people after the government announced a crackdown on the growing labour troubles in the key mining sector. Xstrata Alloys and Aquarius halted work in the mineral rich Rustenburg region where operations by top global platinum producer Anglo American Platinum (Amplats) and number three company Lonmin have already been shuttered.
Amplats halted operations at five mines in the area on Wednesday over safety concerns after staff were intimidated with threats of violence, while the paralysed Lonmin reported a 0.31 percent worker turnout on Friday.
By late Friday on the London Bullion Market, gold surged to $1,775.50 an ounce from $1,728 a week earlier. Silver soared to $34.71 an ounce from $32.22.
On the London Platinum and Palladium Market, platinum increased to $1,697 an ounce from $1,593. Palladium gained to $702 an ounce from $647.
BASE METALS: Base or industrial metals also hit multi-month pinnacles.
“Markets exploded to the upside yesterday (Thursday), and although the action in base metals was fairly restrained in comparison to other complexes, we certainly are making up for some lost ground today, with meteoric rises evident across the board,” said Edward Meir, analyst at broker INTL FCStone.
On Friday, copper, tin and nickel hit four-month highs. Aluminium and zinc scored peaks last witnessed in late March, while lead hit a level last seen at the end of February.
“Copper prices have hit their highest levels since early May on an expectation that yesterday’s (Fed) measures could lead to a recovery in industrial activity,” added CMC Markets analyst Michael Hewson. By late Friday on the London Metal Exchange, copper for delivery in three months jumped to $8,399 a tonne from $7,822 a week earlier.
Three-month aluminium soared to $2,190 a tonne from $2,003.
Three-month lead climbed to $2,254 a tonne from $2,079.
Three-month tin rocketed to $21,350 a tonne from $19,915.
Three-month nickel leapt to $17,640 a tonne from $16,300.
Three-month zinc surged to $2,110 a tonne from $1,960.
SUGAR: Sugar futures rebounded from a two-year low which was struck the previous week.
By Friday on New York’s NYBOT-ICE exchange, the price of unrefined sugar for October rose to 19.94 US cents a pound from 19.09 cents.
On LIFFE, London’s futures exchange, the price of a tonne of white sugar for delivery in December grew to $574.30 from $549.30 a week earlier.
COFFEE: Coffee futures also gained ground.
By Friday on NYBOT-ICE, Arabica for delivery in December rose to 181.35 US cents a pound from 160.70 cents a week earlier.
On LIFFE, Robusta for November increased to $2,099 a tonne from $2,043.
COCOA: Prices fell on profit-taking, having soared the previous week to ten-month highs on supply worries in major producing nations in Africa.
By Friday on LIFFE, cocoa for delivery in December recoiled to £1,695 a tonne from £1,736 a week earlier.
On the NYBOT-ICE, cocoa for December dipped to $2,634 a tonne from $2,693.
RUBBER: Prices rose on active buying from major tyre-makers and speculation that China would also take steps to boost its powerhouse economy, dealers said.
The Malaysian Rubber Board’s benchmark SMR20 ended the week higher at 275.95 US cents a kilo from 254.15 cents the previous week.