Global commodity markets covering energy, metals and agriculture registered a mixed performance last week with positive and negative news impacting prices.
The positive news was from the US Labour Department which on Friday said the non-farm employment increased by 146,000 jobs last month after rising by 138,000 in October.
Interestingly, this defied expectations of a sharp pullback related to the negative impact of super storm Sandy. Jobs growth now remains on a steady but slow path, as an expert commented. At the same time, the jobless rate fell to a near four-year low, driven by a fall in jobseekers, tempering sentiment.
Crude oil market eased during the week, weighed down by weakening macro-economic sentiment. As for base metal, barring copper, others closed the week in the negative territory, despite making some recovery on Friday.
Copper showed strong performance over the week. On the other hand, silver prices fell down more than 4 per cent on Friday’s PM Fix.
In agriculture, unusual weather in South America – excessive rains in Argentina and dry weather in southern Brazil – caused soyabean prices to rise. It is happening at a time when the global supplies are tight, but demand remains firm.
Any setback to South American crop can potentially trigger a bull run in the world soyabean market. Among other crops, coffee prices fell to a two-and-a-half year low last week amid abundant supplies. Sugar slightly edged up following expectation of a rise in domestic price of gasoline in Brazil, the world’s largest sugar producer and exporter.
Global demand for steel will improve moderately in 2013 after slowing this year, but significant excess capacity in the sector will take many years to work off, the OECD Steel Committee said on Friday. Steel demand growth has slowed to 2 per cent in the third quarter of 2012 from a rate of 9 per cent in the corresponding quarter last year.
As we move towards the year-end, activities in the world commodity markets will remain somewhat muted.
However, the US fiscal cliff, developments in the Euro area and geopolitical issues will continue to engage the attention of market participants.
Gold under pressure
Prices have remained under pressure for two weeks in succession notwithstanding uncertainties overt surmounting the US fiscal cliff, European sovereign debt and so on.
Clearly, for the yellow metal, investor interest on which so much emphasis is usually laid has been mixed. While retail interest remains supportive, tactical positioning is scaled back.
So, despite bullish macro fundamentals and steady investor interest, gold has failed to cash in on the supportive backdrop. Its haven status is under scrutiny.
The physical demand has been nothing to write home about. With dollar strengthening and modest yet positive signs of recovery in the US, gold runs the risk of losing its sheen. No wonder, there is lack of conviction, unless a major trigger develops to arrest the risk of price decline.
In London on Friday, the gold PM Fix was $1,702 an ounce, edging up slightly from the previous day, while silver AM Fix on Friday $32.85/oz, little changed from Thursday.
We can expect market-fatigue, year-end considerations and profit-taking to continue to pressure the yellow metal down in the global market.
However, the benefit of a fall in dollar denominated price will hardly benefit Indian consumers as the rupee continues to remain weak. The yellow metal is likely to face resistance at 1,718 and then at 1,725, while support is seen at 1,684 and then at 1,672.
According to technical analysts, back above 1,706 is needed to confirm a move higher in the range toward 1,740. For palladium, upside is confirmed on close above 705. The medium term outlook is said to be bullish.
Metals rally
Prices have rallied in recent days essentially because of short-covering. Aluminium and copper markets deserve a specific mention.
On Friday, LME cash copper closed at $8,012 a tonne while aluminium was $2,087. These levels are seen unsustainable given the market fundamentals. Aluminium market is in large surplus and stocks are rising. Zinc is no different.
Demand for copper does not look robust, especially in China. Unless the fundamentals improve, the rally may not last. If anything, higher prices may open an opportunity to short aluminium in particular.
According to technical analysis, aluminium seems to be looking for a corrective bearish pullback. The medium term outlook is said to be bearish.
Crude bearish
Although the market has been range-bound, the range is getting a bit wider.
However, despite demand concerns and geopolitical risks, there is no genuine catalyst for the market at this point in time.
Technically, the picture is said to look bearish for both Brent and WTI with potential for prices to slide by $ 2-4 a barrel.