Commodities Corner: When doves cry

Company News

by Glenn Dyer

Weakness in commodities for a second week in a row, though oil steadied Friday.

Commodities are now reacting to the fears in sharemarkets that central banks may be tightening too quickly, raising the chances of a slowdown or recession which would in turn cut demand for oil, iron ore, copper, tin etc.

 Copper though led the way lower with prices down nearly 7% for the week in London and New York and at 15-month lows.

Benchmark copper on the London Metal Exchange (LME) was 0.5% lower at $US8,280 a tonne on Friday after touching a low of $US8,122.50.

Copper is now a long way from its peak of $US10,700 a tonne in March and in the grip of the bear.

In New York Comex copper settled at $US3.76, down 6.4% for the week which saw the price of the metal slump well under $US4 a pound for the first time in more than a year.

Comex copper is down more than 13% for June so far and over 20% for the quarter.

That 24% slide in copper prices is taken seriously by many investors as the red metal is widely regarded as an advance indicator of economic slowdowns.

Investors are now pondering whether there is any message from the price slide – but like so many things, we only find out the truth of something like a bear market in copper well after the event.

Other industrial metals also tumbled, with nickel shedding around 13% and tin sliding 22%, its biggest weekly slump since at least 2005.

LME tin prices were down 10.1% on Friday at $US24,260 a tonne, off more than 50% from its high in March, having earlier fallen as low as $US22,980.

LME nickel was down 6.9% at $US22,375 a tonne and trading at its lowest level in five months and an awfully long way from the $US100,000 a tonne hit in March’s big squeeze.

Aluminium fell 0.8% to $US2,457 a tonne and down around 2% last week. Zinc slipped 3.9% to $US3,354.50, to be down around 5%; and LME lead lost around 7% for the week to end Friday at $US1,925 a tonne.

Comex gold settled at $US1,830.30, down 0.7% for the week. Comex silver eased 2.3% over the week to end around $US21.12 an ounce.

Gold’s weakness came despite an easing in bonds – the 10-year bond ended at 3.13%, down 10 basis points over the week.

The US dollar also eased slightly over the week – less than 1% and the Aussie dollar ended around 69.40 US cents, up slightly from the previous week’s close.

Fastmarkets MB reported that 62% Fe iron ore fines imported into Northern China ended around $US115.44 a tonne, down 0.7% from Thursday’s closing and the previous Friday’s $US120 a tonne.

After consecutive losses, prices recovered Thursday after Chinese President Xi Jinping pledged to take more effective measures to achieve the country’s economic and social development goals.

Xi’s remarks also buoyed the spot market, with the benchmark 62%-grade iron ore bound for China trading at $117.50 a tonne on Thursday.

It had dropped to $US112.50 the day before, the lowest since December 10, and at one stage dipped as low as $US108 a tonne, according to the Singapore Exchange’s futures market.

Oil prices fell for a second week as investor unease about growth again infected commodities such as oil.

In the short term, the energy market remains tight and the International Energy Agency expects that to intensify as a result of Russia’s shrinking supply, especially in Europe in coming months.

Prices have dropped for two weeks with global indicator, Brent at $US113.12 (steady on the day) and US West Texas Intermediate crude at $US107.62 a barrel.

US crude rose 2.7% on Friday but still lost 3% for the week. Brent shed 4% for the week.

More oil and natural gas rigs were added in the US for a second week in a row, continuing the record 23-month streak of increases, thanks to high crude and gas prices.

The oil and gas rig count rose 13 to 753 in the week to June 24, the highest since March 2020, according to energy services firm Baker Hughes.

That put the total rig count up 283, or 60%, over this time last year.

US oil rigs rose 10 to 594 last week, the highest since March 2020, while gas rigs rose three to 157, the highest since September 2019.

That put the overall oil and gas rig count up for a record 23 months in a row, rising 26 in June. It also put the count up for seven quarters in a row, the longest run of gains since 2011.

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Agricultural commodities did not escape last week’s weakness thanks to improved wheat growing conditions in the US grain areas.

Wheat was lower in Chicago at $US9.50 a bushel. Corn prices steadied around $US7.52 a bushel.

Cotton prices stood out with a 26% slump last week to $US1 a pound on Friday.

New York sugar (whites) prices were also easier. They peaked at 19 US cents a pound on Tuesday and ended at 18.37 US cents on Friday.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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