950805

London commodities

Precious metals nosedive as

investment funds sell massively

LONDON: Gold, silver, platinum: all the precious metals nosedived this week on a market abandoned by several US investment funds.

Speculators apparently decided to liquidate their holdings, weary of waiting for an eventual upturn in precious metal prices. One London analyst predicted that the decline will accelerate during the month of August, with the price of gold hitting 375 dollars per ounce from 385 dollars right now.

In contrast, the base metals advanced, in particular nickel, lifted by rumours of supply disruptions at Norilsk, the world's largest mining complex, situated in Siberia beneath the arctic circle.

Oil prices fluctuated uncertainly, for a time lifted by the Erin hurricane in the Gulf of Mexico, while rubber managed to halt its slide.

Cocoa staged a spectacular recovery, boosted by rumours of large Ghanian sales while the coffee market cooled down somewhat after the frenzy of the past few weeks.

GOLD: The price of gold fell to below 382 dollars per ounce during the week, a low since March, under pressure of heavy selling by investment funds.

According to one analyst, "the investment funds have had enough of waiting for a recovery in precious metals that still hasn't arrived."

The market had been depressed by the continued failure of the precious metals to rise on the back of dollar weakness and by comments from US Federal Reserve Chairman Alan Greenspan suggesting that inflationary pressures had receded in the US.

Lower inflation reduces the incentive for traders to escape the effect of rising retail prices by buying gold.

According to UBS analyst Andy Smith, gold will continue to lose ground this month, with prices averaging 375 dollars. Silver and platinum will follow the same course.

At the end of the week, the metal recovered a little to close around 385 dollars.

SILVER: Already low, the price of silver dived on Tuesday to 5.03 dollars per ounce, a low since March 30, under the pressure of selling by US investment funds.

At the end of the week, the metal enjoyed a slight recovery to 5.20 dollar per ounce on the back of a temporary weakness in the dollar on Thursday.

But a number of analysts said that there was no direct link between the value of the dollar, which took off on Wednesday against the yen and the mark, and the poor performance of the precious metals.

PLATINUM: The metal dropped by over 10 dollars to 419 dollars per ounce on Tuesday, a low since March, before moving back up to 424 dollars.

According to London trading house GNI, the metal reacted negatively to a report predicting higher-than-expected Russian exports. The country accounts for nearly 25 percent of the platinum supply in the world, partly because it selling some of its strategic reserves.

COPPER: Copper prices for three month delivery ended the week over 75 dollars higher at around 2,970 dollars per tonne, on bullish economic news from the US and predictions that the market will become increasingly tight.

But gains were limited at the end of the week by profit-taking and a disappointing LME stocks drawdown of 550 tonnes, taking the total stocks to 150,550 tonnes, 3,525 tonnes down on the week.

According to GNI commodities, there are increasing indications now that the US is heading for an economic rebound in the second half of year after a string of positive data.

Analysts at Bloomsbury Economics, meanwhile, warned that it will be well into 1996 before new capacity begins to bite into the supply tightness, which will drive prices up.

LEAD: Lead ended the week nearly 15 dollars higher at around 650 dollars per tonne, cheered by the continued large decline in stocks. Lead stocks fell by 2,925 tonnes to 231,700.

ZINC: Zinc ended the week nearly unchanged at around 1,055 dollars per tonne.

Chinese zinc production rose by 5.5 percent and the country's consumption was almost flat in the first five months of the year, according to figures quoted by GNI. But mine output during this period in the country was little changed, which will require a greater supply of imported concentrates, analysts said.

GNI commodities predicted that supplies will be artificially tight over the next few months as producers try to continue to ride the back of the shortage caused by the strike at MIM this year. LME weekly stocks declined by 8,125 tonnes to 782,000.

ALUMINIUM: Aluminium ended the week nearly 40 dollars higher at around 1,940 dollars per tonne, mainly on the back of speculative buying by investment funds.

The threat of strike action over labour conditions at Canadian producer Alcan's Quebec facilities still looked on the horizon after workers voted to give the union a strike mandate, although negotiations were still continuing.

Meanwhile, a report by the British trading house Billiton Metals predicted that the shortfall between house supply and consumption in the west would reach a record 1.205 million tonnes in 1995, mainly because of the worldwide export limit plan signed in February 1994.

However, it said that from 1996, western production would begin to rise. Aluminium stocks fell by 12,175 tonnes to 571,525.

NICKEL: Nickel ended the week around 200 dollars higher at around 9,070 dollars per tonne, after reaching a record since February on worries about supply disruptions from Russia's Norilsk.

Bain Securities, part of the Deutsche Bank group, also suggested that sharply rising stainless steel usage because of the infrastructure building boom in Asia was responsible for the higher demand. Weekly stocks on the LME declined by 2,004 tonnes to 72,978.

TIN: Tin ended the week around 75 dollars higher at around 6,655 dollars per tonne, despite a comment earlier in the week by top Chinese official that country is likely to exceed its 20,000 tonne ACPC export quota. Weekly stocks rose by 70 tonnes to 15,780.

COCOA: Prices recovered in a spectacular fashion, rising by over 50 pounds, or six percent, to reach more than 905 pounds per tonne, a high since early July, lifted by speculative buying.

Market sentiment was boosted by rumours of Ghanian cocoa sales. Dealers heard that a large US trading house had agreed to buy 50,000 tonnes of cocoa beans from Ghana, the world's second largest producer. A deal of this kind would severely limit the quantity of West African cocoa available for export.

According to one trader, the large jump in prices could also be due to the temporary withdrawal from the market of the world's number one producer, the Ivory Coast.

The trading house GNI suggested that the market responded suddenly to reports that in the 1995-1996 season (October to September) worldwide supply will overshoot demand.

COFFEE: After last week's frenzy, the market calmed down, falling slightly to 2.610 dollar per tonne.

Prices were not affected by the positive figures on the New York CSCE market for green coffee reserves, which fell by over 100,000 sacks in the space of a week. This fall in stocks was expected by traders, even if some of them interpreted them as proof of tighter supply.

Fundamentally, prices are still supported by weak robusta and arabica exports. Brazil is even having trouble fulfilling its monthly export quota, fixed for the next 12 months at one million 60 kilogram sacks of coffee, because of falling production, according to Brazilian producers.

SUGAR: The price of sugar initially held remarkably stable around 304 dollars per tonne, weighed down by summer apathy, before advancing at the end of the week to 306 dollars per tonne.

Traders fear that continued heavy rains in India might affect the country's sugar cane harvest. And many, among them the German specialist F O Licht, also believe that the current high tamperatures in Europe might damage the sugar beet crops.

Dealers also grew worried that Cuba's harvest would be at threat from the Erin hurricane, but in the end the storm moved towards the US coast.

Brazil has slightly reduced its forecasts for the 1995/96 harvest to 11.46 million tonnes from 11.6 million tonnes in 1994/95.

VEGETABLE OILS: The price of vegetable oils fell in response to welcome rainfall in the US soya fields, which improved prospects for the country's harvest.

Soya declined by half a florin to 94.50 florins per 100 kilograms while palm oil lost 35 dollars to 650 dollars per tonne, hit by weak demand in Kuala Lumpur, Malaysia, the world's largest market for this cheap oil.

Rapeseed fell by half a florin to 92.50 florins per 100 kilograms and sunflower oil declined by 10 dollars to 780 dollars per tonne.

OIL: The reference price for Brent crude North Sea oil oscillated between sudden upward and downward movements this week, but remained within a relatively small range.

Prices fell below the 16 dollars per barrel barrier for some time, depressed by disappointing figures for crude oil stocks in the US, which increased by 3.37 million barrels in the space of one week.

Then the market recovered, supported by fears that the Erin hurricane would damage oil installations in the Gulf of Mexico.

Prices climbed to 16.38 dollars on Thursday, as traders in London grew worried like their American colleagues after it was announced that a pipeline, platforms in the Gulf and a coastal refinery in Mississippi had been shut down.

But as the hurricane grew less fierce and turned into a simple tropical storm, prices fell back to end the week slightly over 16.1 dollars.

RUBBER: Prices hit a support level at 840 pounds per tonne after weeks of free-fall. According to one London trader, cover-buying was responsible for this stabilisation and it is unlikely to last. The tyre manufacturers are still staying out of the market and prices could start to fall again soon, he said.

According to the International Rubber Study Group, world production of rubber should rise by three percent to 5.89 million tonnes in 1995 and overshoot consumption by 200,000 tonnes.

In the first half of the year, production totalled 1.49 million tonnes, up 14 percent on the first six months of 1994. The strong rise in output from South-East Asia, which accounts for 75 percent of world exports, has been partly responsible for the crash in prices since the spring.

GRAINS: Wheat and barley prices advanced initially, to 114 and 108 pounds per tonne respectively, on the back of declining worldwide supply and ahead of the first deliveries from the new harvest.

But at the end of the week, the European market was depressed by losses on the Chicago market, the world's largest, and prices fell back to 112 and 105 pounds per tonne.

US wheat prices plunged mid-western plains.

Traders also reacted to a slowdown in global demand for US grains, perhaps due to the high price levels. Importers appeared to be holding back from buying until the arrival of the new harvest.

TEA: Prices at the London auctions advanced significantly for high-quality teas from Kenya and Burundi. The price of medium-quality tea remained at around 102 pence per kilogram while the poor-quality Ceylon teas gained slightly in price.

COTTON: The onset of rains in the Mississippi delta after a period of intense heat resulted in a sharp fall in prices.

With traders now anticipating a very good harvest in the US - the world's largest producer - the benchmark Cotton Outlook indicator price fell by seven cents to 0.83 dollars a pound, still a low since December.

WOOL: The reference price in Bradford, northern England, fell by eight pence to 492 pence per kilogram mainly because of a poor start to the first auctions of the season in Australia.

Wool from the world's largest producer failed to excite the usual buying interest among the Chinese and the Japanese.-AFP