Commodity end-year prices mixed amid US budget impasse

December 30, 2012

Commodity Markets
Commodity Markets

Commodity prices were mixed last week, heading towards the end of 2012, a year in which the values of raw materials such as oil and gold were determined largely by global economic strains and recovery hopes.

OIL: Oil prices rose in limited trading amid both the festive season and a stalemate in talks to avert the “fiscal cliff” of US tax hikes and spending cuts. Traders are concerned by political bickering in Washington over a new budget due to take affect on January 1. In recent weeks, Democratic and Republican leaders have rejected offers from the other side and broke for the Christmas holiday blaming each other for failing to find a deal.

On Friday, markets were waiting for an 11th-hour meeting between US President Barack Obama and congressional leaders over a deal to avert a potentially catastrophic situation. Traders welcomed news of Obama’s meeting, which was to take place after the president cut short his Christmas vacation in Hawaii. “They are trying to at least come up with something before the year comes to an end, so Obama shortening his holiday and coming back… I think that is a plus point,” IG trading group analyst Yang Weiming told AFP.

Obama returned on Thursday to a sharply divided Washington, where the mood has soured on a possible plan to prevent hundreds of billions of dollars in tax hikes and spending cuts from kicking in next week. Analysts warn that the combination will tips the United States – the world’s biggest consumer of crude oil – back into recession, further denting demand for energy.

Looking ahead, an already predicted drop in oil demand growth next year risks weighing on high crude prices despite Middle East unrest. Benchmark Brent crude oil futures have traded around $110 a barrel for the past two months, benefiting major crude producers like Saudi Arabia and Iran while putting a strain on main consumers the United States and China.

Despite geopolitical tensions across the oil-rich Middle East, amid violence in Syria, recent Israel-Gaza unrest and a Western ban on Iranian crude exports, analysts said prices could drop in 2013 should a world economic recovery falter. Brent prices hit a 2012-high of $128.40 a barrel on March 1, before slumping in late June to $88.49 – its lowest point of the year.

Prices had spiked in March to a near four-year high on escalating tensions over Iran’s alleged nuclear weapons programme, the eurozone debt crisis and otherwise positive economic data, according to analysts. Crude futures meanwhile slumped in June to 18-month lows owing to weak demand expectations.

By Friday on the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for delivery in February rose to $90.97 a barrel from $88.40 a week earlier. On London’s Intercontinental Exchange, Brent North Sea crude for February gained to $110.72 a barrel from $108.88 the previous week.

PRECIOUS METALS: Gold prices were next year forecast to build on a 5.0-percent gain recorded in 2012. “We continue to expect the precious metal to reach new record highs of at least $2,000 (an ounce) in 2013,” said Julian Jessop, commodities analyst at Capital Economics research group.

“The monetary, regulatory and macroeconomic backdrops should still be positive, demand from China and India is likely to accelerate again, and central banks will probably continue buying.” Jessop added that “gold appears to have moved from being regarded primarily as a safe haven and inflation hedge to being treated as just another risky asset.”

By late Friday on the London Bullion Market, gold rose to $1,657.50 an ounce from $1,651.50 a week earlier. Silver gained to $30.15 an ounce from $29.89. On the London Platinum and Palladium Market, platinum dipped to $1,527 an ounce from $1,533. Palladium gained to $704 an ounce from $675.

BASE METALS: Base or industrial metals traded mixed at the end of a volatile year for prices. Losses early in 2012 caused by the eurozone debt crisis gave way to a rebound late on in the year thanks to US stimulus measures and improved Chinese economic data. “Metals prices are likely to carry their momentum over into the new year, and continue their uptrend in 2013,” predicted analysts at Commerzbank in a note to clients.

“This is likely to be driven mainly by a recovery in the global economy, which is expected to materialise next year, and accelerate in 2014,” they added. By late Friday on the London Metal Exchange, copper for delivery in three months rose to $7,888 a tonne from $7,802 a week earlier.

—- Three-month aluminium slipped to $2,067 per tonne from $2,070.

—- Three-month lead grew to $2,325 a tonne from $2,291.

—- Three-month tin fell to $23,252 a tonne from $23,300.

—- Three-month nickel decreased to $17,150 a tonne from $17,540.

—- Three-month zinc climbed to $2,071 a tonne from $2,065.

COCOA: Prices rose by about 5.0 percent in 2012 after plunging by almost a third in value the previous year. Ahead, the market was expected “to be supported by a global deficit in 2012-13 owing to less-than-favourable weather in key producers, which has caused production setbacks, and relatively strong demand growth in emerging markets,” said Barclays Capital analyst Kate Tang.

“Lower-than-expected cocoa arrivals in (top producer) Ivory Coast are causing concern about the size of the 2012-13 crop, which has suffered from adverse weather,” she added. By Friday on Liffe, London’s futures exchange, cocoa for delivery in March dropped to £1,445 a tonne from £1,471 a week earlier. On New York’s NYBOT-ICE exchange, cocoa for March decreased to $2,262 a tonne from $2,325 a week earlier.

COFFEE: The price of Arabica-quality coffee slumped by 35 percent his year owing to abundant South American supplies but was finishing 2012 on a high. By Friday on NYBOT-ICE, Arabica for delivery in March rose to 145.85 US cents a pound from 144.05 US cents a week earlier. On Liffe, Robusta for March gained to $1,907 a tonne from $1,881 a week earlier.

SUGAR: Futures shed 15 percent of their value in trading on both sides of the Atlantic on expectations of a strong Brazilian harvest. J.P. Morgan analyst Colin Fenton said “the sugar market will remain in surplus in 2013.” By Friday on Liffe, the price of a tonne of white sugar for delivery in March rose to $522 from $516.20 a week earlier. On NYBOT-ICE, the price of unrefined sugar for March increased to 19.45 US cents a pound from 19.16 cents the previous week.

Courtesy: AFP

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