Gold more expensive than platinum for the first time since mid-January
- Oil price on a roller-coaster ride due to the Italian elections
- China imports significantly less crude oil from Iran
- Gold more expensive than platinum for the first time since mid-January
- Premiums on aluminium in Japan set to rise again in the second quarter
- High supply surplus pushes sugar price below 18 US cents mark again
Although the election stalemate in Italy weighs on commodities prices, the outcome of the election should soon lose its interest for the markets. We have not forgotten the “fateful elections” in France last spring, after all, when some observers assumed that a victory of Francois Hollande would signal an end to the euro. By the autumn, however, no-one seemed at all interested any more. Financial markets had become somewhat overheated recently, and were well in need of some time out. It is thus hardly surprising that the headlines are currently dominated above all by the fears of what might happen in Italy and the dispute in the US Senate. We are confident that the commodities markets will resume their recovery following this brief breather.
Energy: Hopes of a market-conducive outcome to the Italian elections initially caused Brent to climb to $116 per barrel yesterday. However, when it became clear that these hopes would not be fulfilled, prices came under all the more pressure. This morning saw Brent hit a four-week low of $113.3 per barrel, while WTI dropped for a time to below $92 per barrel, its lowest level since early January. In view of the negative market sentiment, prices are likely to remain under pressure for the time being, even if prices have slid excessively since yesterday and the current price level appears attractive. Nonetheless, the considerable long position overhang among speculative financial investors could continue to weigh on prices. According to the ICE, speculative net long positions in Brent in the week to 19 February totalled 179.3 thousand contracts, which is only marginally below the record high they achieved at the beginning of February. Because the price has fallen sharply since last Tuesday, further long positions are likely to have been reduced in the meantime. Month-on-month, China virtually halved its oil imports from Iran in January to 310 thousand barrels per day, which also represents their lowest level in 10 months. Iran may therefore be ready to make concessions when it meets for talks with the world powers today for the first time in eight months. There is a general consensus that Iran should be offered limited easing of sanctions if it halts its work on its nuclear programme.
Precious metals: Over the past few days, gold has been living up to its reputation as a safe haven again. At the same time, the yellow precious metal is continuing its recovery and this morning has made a renewed attempt to take the $1,600 per troy ounce hurdle. The latest price slide is clearly regarded as offering an attractive opportunity to buy gold. What is more, the outcome of the Italian elections is likely to spark increased demand for gold, as it could force the sovereign debt crisis back into the foreground. The higher risk aversion displayed by market players is also reflected in the gold/platinum ratio – this morning saw gold trading briefly at a higher price than platinum for the first time since mid-January. Market players are likely to be turning their attention today to Fed President Bernanke’s hearing before the Senate’s banking committee. In the past, precious metals in particular showed noticeable price fluctuations as a result of such hearings.
Base metals: Japanese aluminium consumers will clearly have to get used to paying higher premiums for this light metal once again. According to industry sources, the premium payable on the LME price in the second quarter is set to climb to $255 per ton, thus entirely reversing the reduction in premiums observed in the first quarter. At present, premiums of $240 to $245 per ton are being paid. Negotiations between aluminium producers and Japanese consumers – Japan is the largest Asian importer of the light metal – should be completed by mid-March. The Japan Aluminium Association assumes that the economic stimulus measures initiated by Japan’s new Prime Minister Abe will result in greater demand, increased investment and higher exports in the land of the rising sun. The latter should be underpinned by a weak yen, shoring up demand from export-oriented manufacturers. The construction sector is also likely to boost demand, as people are likely to want to buy houses before next year’s planned increase in sales tax comes into effect. The probable renewed increase in premiums in Japan is doubtless due in part to the still high premiums in the US and Europe. In North America, aluminium demand climbed last year by 5.3% year-on-year to 10.5 million tons, says the Aluminum Association.
Agriculturals: The price of raw sugar in the most-active futures contract has plunged to below 18 US cents per pound again this morning. Since the beginning of the year, sugar has shed over 8% of its value. There is no shortage of bearish news: the International Sugar Organization (ISO) has just revised its estimate of the sugar surplus in the 2012/13 season up 38% to 8.5 million tons. What is more, the ISO also believes there is “little likelihood” of a deficit in 2013/14. Sugar trader Kingsman is more concrete in its predictions that there will be an additional surplus in 2013/14, albeit only half as high. These estimates are doubtless based on the assumption that sugar production in Brazil will continue to grow after already achieving a record 40.3 million tons a year earlier. It remains to be seen whether this will actually happen. After all, the high premiums payable on Brazilian ethanol as compared with sugar are currently making the use of the crop for biofuel lucrative; according to current estimates, the proportion of the Brazilian sugarcane harvest used to produce biofuel is set to climb from 51% to as high as 60%. According to the CFTC’s data, speculative net short positions soared to a record level of nearly 49.8 thousand contracts in the week to 19 February. In our opinion, the sugar price shouldn’t fall any further, and is more likely to respond to negative news with price increases.