In a week marked by slowing trade activity in the global commodity markets in view of approaching holidays, the portends for the New Year appeared ominous. Composite leading indicators (CLIs) point to stabilizing growth in the OECD area.

Designed to anticipate turning points in economic activity relative to trend, the OECD CLIs continue to point to weak growth prospects in many major economies; but the silver lining may be the signs of stabilisation emerging in some economies mainly the US, Canada and China.

In India and Russia the CLIs continue to point to weak growth.

The situation is fraught with implications for the growth-oriented commodities such as crude and base metals.

In the US, the fiscal cliff continues to generate anxious debates and seems to be a true cliff-hanger.

No wonder, the crude oil market has continued its long sideways march in the absence of a trigger. But the metals complex took a beating last week. There was a huge sell-off in the precious metals section.

All precious metals were down over the week with silver prices collapsing by 8.1 per cent to move below $30 an ounce while gold weakened by 2.6 per cent to test $1,650/ounce.

Platinum and palladium prices were down 5 per cent and 3.6 per cent respectively.

Among base metals, aluminium took a beating with a downward price movement of 4.2 per cent following by nickel 3 per cent and copper 2.9 per cent over the week.

However, on Friday, with better US consumer spending data, there was some rebound in copper. Over the week as a whole, only lead and tin closed higher that too marginally.

Amidst the weak sentiment across the commodities complex in general, the interesting aspect is China’s strong commodity imports during the year.

Key agriculture commodities, particularly corn, cotton and soyabean imports have registered strong growth in the first 11 months of the year. Imports of all primary metals except nickel also expanded fast this year. Iron ore import growth has reached 8 per cent year-on-year. Crude oil import growth so far this year is running ahead of 2011, while coal imports have been strong.

So, in some way, China has played a key role to prevent a collapse of bulk commodity prices. Experts believe the trend will continue into 2013.

The next two weeks will witness muted activity in global commodity trade. Annual commodity index rebalancing is looming in early 2013.

According to experts, although outright price levels are unlikely to be affected, spreads between different futures markets for crude oil, copper and wheat have the potential to widen as the rebalancing period approaches.

Also, in general, fundamentals have shown little sign of strengthening just yet, with overhang of raw materials inventory in China still a problem for the metals market.

Some analysts assert that a US fiscal cliff resolution should be positive for gold as reflation risks will move back centre stage, while the geopolitical developments continue to raise the upside risk for oil prices.

Gold: waning demand

Last week saw a huge sell-off in all precious metals attributed to year-end profit-taking.

In London on Friday, gold PM Fix was $1,652/ounce, a tad higher than the previous day’s $1,651. On the other hand, silver lost heavily to Friday AM Fix of $29.89 versus the previous day’s $31.12.

The physical demand for the yellow metal is muted. Indian consumers have turned wary of gold purchases, as even investment demand is said to be slowing.

Policymakers in India are serious about curbing gold imports as it is perceived to have become a wasteful drain on precious foreign exchange.

On the bourses, tactical positioning is weak. Expanded liquidity in the US through asset purchase has hardly helped gold.

In China, gold demand has slowed, although it continues to outpace its domestic mine supply.

At the same time, gold bulls are still optimistic about price performance. They say gold has the greatest potential to regain its upward momentum, given the responsive physical demand, continued central bank buying and robust ETP holding.

The macro picture is supportive. But the bulls may be in for some more disappointment in 2013.

Mixed trend in metals

According to International Copper Study Group, the refined copper balance for the first nine months of 2012 indicated a production deficit of 594,000 tonnes versus 74,000 tonnes deficit during same period last year.

During January-September 2012, world apparent usage grew by 5.2 per cent.

On Friday, LME cash copper closed at $7,808/tonne while aluminium ended the week at $2,048.

There is reason to remain bearish on aluminium prices given ample stocks. The lead fundamentals for 2013 look constructive. Copper and nickel fundamentals have weakened.

Crude: Weak outlook

The market has remained staid for some time now, obviously looking for a trigger.

The fundamentals are tight, but economic outlook is weak. The one trigger that can spur the market into action is, of course, geopolitics.

It is anybody’s guess if anything would happen on that front anytime soon.

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