Crude oil dived to 6.5-year lows but finished the week in positive territory after a Chinese rate cut and solid US GDP numbers

AFP
London


Many commodities faced a fierce sell-off earlier last week, rooted in demand fears arising from China’s slowdown, but later rebounded in line with equities after surprisingly strong US growth data.
World stock markets were hammered on Black Monday—with Shanghai collapsing by almost 8.50%—as risk-averse investors dumped shares and many commodities over panic that the flagging Chinese economy could spark a new world recession.
Crude oil dived to 6.5-year lows but finished the week in positive territory after a Chinese rate cut and solid US GDP numbers.
Base or industrial metals were among the hardest hit, with aluminium and copper striking six-year lows on China demand fears, while lead and zinc also suffered.
The Bloomberg Commodity Index of 22 raw materials tumbled to a 16-year-low, with many markets plagued also by oversupply and rising production.
Sentiment was boosted Thursday by easing China worries and upbeat US growth data, and after one of the most senior Federal Reserve officials declared that recent China turmoil had weakened the case for a rate hike in September.
Investors remain fearful that the Asian powerhouse’s slowdown could ravage demand for raw materials, which have fed its astonishing growth in recent years.
“The steep fall in commodities ... is all down to bearish sentiment about China,” said Phillip Futures analyst Daniel Ang.
“Investors are fearing further price drops in commodities and are channelling funds to safe havens including gold and the Japanese yen.”
OIL: Prices collapsed Monday to levels last seen during the global financial crisis, with Brent and WTI sinking to $42.23 and $37.75 respectively.
Prices then held close to six-and-a-half year lows on fears about slowing economic growth and faltering demand from top energy consumer China.
“Investor sentiment towards commodities has rarely—if ever—been more negative,” said Julian Jessop, head of commodities research at Capital Economics.
“However, the recent sharp falls in prices can largely be seen as the continuation of trends in place since 2011. The main difference is that oil, previously an outlier, has caught up.”
Sentiment was soothed by Tuesday’s interest rate cut from the People’s Bank of China (PBoC).
Both oil contracts then soared 10% Thursday after news the US economy—the world’s biggest followed by number two China—grew at an annual rate of 3.7% in the second quarter or April-June period, after 0.6% in the first quarter. The Q2 reading had been initially estimated at 2.3% and analysts had expected a smaller revision upward to 3.1%.
“There’s a bit of shock and disbelief at the strength of the US economic data,” CMC Markets strategist Michael McCarthy told AFP.
Investors were also buoyed by strong data on US durable manufactured goods and crude inventories.
By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in October rallied to $47.20 a barrel from $45.91 a week earlier.
On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for October gained to $42.03 a barrel from $40.91.
PRECIOUS METALS: Gold scored a seven-week pinnacle at $1,170.34 per ounce on Monday as investors sought safety in the traditional safe haven.
“Gold has been a wealth preservation tool for centuries as it is an effective hedge against various risks including financial risk, currency weakness, inflation and tail risks for investors the world over,” said Alistair Hewitt, head of market intelligence at London-based trade body the World Gold Council.
The struggling greenback made dollar-priced gold cheaper for investors holding stronger currencies, thereby stimulating demand and boosting prices.
However, gold fell back towards the end of the week, weighed down as the dollar advanced on solid US GDP data.
By Friday on the London Bullion Market, the price of gold declined to $1,135 an ounce from $1,156.50 a week earlier.
Silver eased to $14.44 an ounce from $15.46. On the London Platinum and Palladium Market, platinum decreased to $1,003 an ounce from $1,028.
Palladium slid to $573 an ounce from $610.
BASE METALS: Copper tumbled Monday to $4,855 per tonne—the lowest point since July 2009. There was also a six-year low for aluminium at $1,506 a tonne, last witnessed in June of the same year.
In addition, lead sank Monday to $1,618.50 a tonne, reaching a nadir last touched in June 2010, while zinc hit a similar low on Wednesday at $1,673.
Some base metals pulled back into gains towards the end of the week.
“The immediate focus is, of course, on China,” added Jessop at Capital Economics.
“But we think that current fears are grossly overdone. For a start, the impact of the equity crash on China’s demand for commodities is likely to be limited.
“What’s more, recent economic data from China have been mixed rather than unrelentingly negative, and we have yet to feel the full benefit of additional policy stimulus.”
By Friday on the London Metal Exchange, copper for delivery in three months firmed to $5,086.50 a tonne from $5,043 a week earlier.
Three-month aluminium rose to $1,569.50 a tonne from $1,556.
Three-month lead dipped to $1,687.50 a tonne from $1,701.
Three-month tin slid to $14,125 a tonne from $14,900.
Three-month nickel decreased to $9,955 a tonne from $10,125.
Three-month zinc increased to $1,804 a tonne from $1,773.50.
SUGAR: New York prices sank Monday to 10.13 US cents per pound, the lowest since June 2008, amid the broader commodities sell-off, before rebounding somewhat.
“Sugar has been faring comparatively well despite the sell-off of commodities, but nonetheless dropped on Monday to a seven-year low,” said Commerzbank analysts.
They added that the subsequent price recovery was “triggered ... by the interest rate cut by the Chinese central bank” and also by rain forecasts in Brazil.
London prices had last week forged a 6.5-year low on the back of abundant supplies and the weak Brazilian Real currency.
By Friday on LIFFE, London’s futures exchange, a tonne of white sugar for delivery in October rose to $348.10 from $332 one week earlier.
On the ICE Futures US exchange, unrefined sugar for October advanced to 11.14 US cents a pound from 10.56 cents.
COCOA: Prices sank in line with turbulent global markets, plumbing low points last seen in May, before rebounding into slender gains.
“Demand sentiment has been really hurt this week with the problems in the world stock markets and fears about emerging market economies,” said Price Futures Group analyst Jack Scoville.
By Friday on LIFFE, cocoa for delivery in December rose to £2,091 a tonne from £2,073 a week earlier.
On ICE Futures US, cocoa for December increased to $3,128 a tonne from $3,121.
COFFEE: The price of coffee touched multi-month lows, weighed down also by the strong dollar.
By Friday on LIFFE, Robusta for delivery in November reversed to $1,643 a tonne from $1,653 one week earlier.
On ICE Futures US, Arabica for December stood at 124.75 US cents a pound compared with 132.60 cents one week earlier.
RUBBER: Prices fell in line with losses for regional futures markets.
On Friday, the Malaysian Rubber Board’s benchmark SMR20 dropped to 128.50 US cents per kilo from 129.90 US cents last Friday.