Sunday, March 20, 2011

Rise in crude oil price helps turn sentiment

Commodity markets lurched violently from one extreme to the other this week as sentiment was buffeted by the twin crises in Japan and Libya.

The benchmark index of the price of raw materials from crude oil to cotton, the Reuters-Jefferies CRB index, plunged 4.1 per cent in the first three days of the week as investors sold commodities indiscriminately amid fears about the fallout of the unfolding nuclear crisis in Japan.

But the index bounced back 3.7 per cent in the second half of the week, led by oil which rose on the prospect of military action in Libya. By late on Friday, the CRB was trading down 0.3 per cent on the week.

Sentiment shifted from panicked selling early in the week to a nascent bullishness by the week’s end, as investors guessed the effects of the Japanese quake and nuclear crisis and thought them positive or neutral for most commodities.

“While recent developments in north Africa and the Middle East, as well as the shocking tragedy in Japan, have significantly increased the risks to our global economic outlook, the macroeconomic backdrop to commodity markets remains supportive,” said analysts at Credit Suisse.

Analysts forecast that events in Japan would be broadly positive for commodities demand, since a rebuilding effort is likely to consume large quantities of industrial commodities such as copper, steel and zinc. However, the long-lasting effects of the tragedy will be most strongly felt by the energy markets, analysts said.

European natural gas and coal markets jumped this week as countries began to re-evaluate their plans for nuclear power. Benchmark UK natural gas prices for April delivery rose as much as 14.6 per cent after the earthquake struck before softening to 61.75 pence per therm – up 7.2 per cent since the previous Thursday. Thermal coal for delivery to European ports in May was up 5.6 per cent during the week.

Uranium, on the other hand, plunged 27 per cent on the spot market as forecasts of a “nuclear renaissance” rapidly faded.

Agricultural commodities were among the strongest performers in the latter half of the week as investors began to focus on the prospect of large Chinese imports for crops such as soyabeans and the possibility of dry conditions in parts of the US during the crucial spring planting season. Corn futures in Chicago surged 10.7 per cent on Thursday and Friday to $6.8225 a bushel, ending the week almost flat.

Gold was also a beneficiary of the reversal of sentiment – as well as the escalating political crisis in the Middle East and the move by G7 finance ministers to intervene in the currency markets. From a low of $1,380.90 a troy ounce on Friday, gold rose 2.5 per cent to $1,416.10.

(Source: http://www.ft.com/cms/s/0/ce9febcc-5191-11e0-888e-00144feab49a.html#axzz1H8S4bhDl)

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