Tame reactions ahead of Bernanke testimony
Some USD weakness and support in the metals resulted in a higher CRB-index. Nevertheless, this short-term optimism did not change the overall negative outlook as the CRB-index remained within its longer term downtrend. The market reactions were mild ahead of the Bernanke testimonies for the House Financial Services Committee. Increased volatility was seen in soft commodities, especially corn, during the expiry of the July contract.
Oil price rally halted
Risk premium to stay for now
The six countries (US, China, Russia, Britain, France and Germany) negotiating with Iran on its nuclear program met in Brussels yesterday to discuss the outcome of the Iranian elections. Negotiations are on hold since April, and hopes are high that they will resume in the coming weeks. Although the elections in Iran did not result in a complete turnaround, hopes on a resolution increased. With worries regarding a possible escalation easing somewhat, the risk premium declined but did not disappear. After all, there is no deal on downscaling the Iranian nuclear program. Furthermore, Israel will keep the pressure high on the world powers to continue diplomatic talks after Prime Minister Netanyahu said that Iran was getting closer to the ‘red line’ he set for its nuclear work. Other reasons for the risk premium to remain are (possible) supply disruptions due to unrest in Libya, Egypt, Sudan/South Sudan, Iraq and Nigeria.
Movements in soft commodities
As US corn supplies are at the lowest levels in 16 years, the expiry of the July contract led to increased volatility, pushing the second contract price down with 12% before the start of this week.
Cocoa prices moved higher on news that top producer Ivory Coast forward sold a large part (750.000 tonnes) of its new 2013/14 crop which starts at 1 October (Thomson Reuters). As a result, the government already sold near 80% of the new crop which increased worries that there might not be enough cocoa left for future sales later this year. As a result, ICE cocoa prices (2nd contract) rallied to the highest level since September 2012. March raw sugar prices (the main benchmark) remained under pressure. However, the front month contract (October prices) dropped to the lowest level since July 2010 on the back of large inventories in combination with producer selling.
Although cotton prices continued to hover approximately 10% below the year highs (set it March) at USDc 84.40/LBS, downward pressure may be seen in the coming years after China hinted on lowering its stockpiling program after 2013. According to the general counsel for China National Cotton Reserves Corp (CNCRC), the building of inventories, which started in 2011, will continue this year. However, a ‘better’ ratio between inventories and consumption is needed but this will take several years to materialize.
Proposal to changing warehousing rules
In volume, aluminium is by far the most stocked metal in LME warehouses and thereby very sensitive to changes in warehousing policies. Early July 2013, the LME (London Metal Exchange) – were most metal stocks are held – proposed new warehousing rules, which will reduce the power of warehouses in metal markets significantly. The proposal could become effective by April 2014. The new rules forces the reduction of queues and ensures that warehouses (with queues of more than 100 calendar days) deliver more metal out than they take in. This dark cloud that is overhanging the sector will lower warehouse premiums and could have a dampening effect on aluminium prices.