960401

London commodities: Threat of frost in Brazil heats up coffee

LONDON: The threat of frost in the Brazilian plantations hangs heavy over the coffee market each year at the same time, like a black spectre, and prices for arabica and robusta begin to climb inexorably.

This week on the New York and London futures markets, these fears sent prices soaring to their highest levels this year.

This surge was prompted by a wave of buying from investors anxious to establish positions on the market before the onset of the winter season in Brazil, which is expected to be particularly harsh this year.

In June and July 1994, two terrible frosts ruined half the coffee crop of the world's biggest exporter, and despite all their precautions, some traders were caught short.

The coffee bush is extremely sensitive to the cold. Dealers have this uppermost in their minds each year as the Brazilian winter season approaches.

Coffee is far from being the only commodity which shot up in price this week. Cocoa, grains, oil and copper were those that enjoyed the strongest rallies.

Experts are beginning to ask themselves if the market will repeat the euphoria of 1994 and 1995, when most commodity prices went through the roof on the back of the US economic recovery and surging growth in Asia.

GOLD: After technical weakness hit the market last week, gold has received a boost from a general rise in commodity prices during the past seven days and market fears over the fall in the value of the rand.

Increases in copper, coffee and oil prices combined to attract investors back to this precious metal.

But above all, speculators turned to gold to insure against falls in the value of the South African currency which has lost 17 percent of its value in two months.

This devaluation was linked to political uncertainties that accompanied rumours about the health of President Nelson Mandela and also on a reform programme for the South African currency market.

The gold market gained from a call for a 24-hour strike next week by the powerful COSATU umbrella trade union group there, which holds 1.3 million members.

Any stoppage would cut production in the world's leading producer country, which mines 25 percent of global gold production.

SILVER: dull. Silver failed to capture the sparkle of gold and held flat at about 5.30 dollars per ounce.

PLATINUM: Platinum prices have failed to rise above the 400 dollars per ounce mark. The market was hit by weak purchases from Japan, the world's most hungry importer of this metal that is used in the manufacture of catalytic converters in the car industry and in jewellery.

COPPER: Prices rocketed to their highest levels this year, propelled by Chinese buying and the danger of strike action at one of the world's largest copper mines.

The fever has not reached the same pitch as in 1994 and 1995 -- when prices climbed to a high not seen since 1989 -- but demand is growing strongly, causing a "worrying tightness" on the market", said an expert from the London trading house GNI.

The reference price for three-month copper reached 1,617 dollars per tonne on Thursday on the London Metal Exchange (LME), the highest level since the beginning of 1996.

This surge followed huge purchases by the Chinese, who have decided to rebuild their reserves for security reasons, after previously selling off part of their strategic stocks.

These purchases caused a surprise stock draw in LME reserves held in warehouses in Singapore. Worldwide LME copper stocks have fallen by more than 50,000 tonnes since the beginning of March. This week they fell by another 1,750 tonnes to 300,975 tonnes.

In addition, the market responded to fears that workers will strike at one of the world's largest copper mines at Chuquicamata in Chile, over a wage dispute with the Codelco mining company. The mine produces 610,000 tonnes of refined copper a year.

LEAD: Prices remained fairly steady at around 805 dollars per tonne while stocks on the LME fell by 500 tonnes to 89,425 tonnes.

ZINC: The price of zinc advanced by 10 dollars to 1,065 dollars per tonne in the wake of copper's gains and on prospects that Western output will be insufficient to cope with growing demand for this metal used in anti-corrosive treatments.

LME reserves fell by 4,500 tonnes to 621,775 tonnes.

ALUMINIUM: The price of this metal advanced in measured steps this week, gaining about 10 dollars to 1,610 dollars per tonne. Earlier sales by aluminium producers, which had weighed down on the market, came to an end, providing some relief.

British expert Anthony Bird pointed to good fundamentals in the market. He predicted that world aluminium stocks would fall sharply in 1997 and 1998, as a result of sharply rising demand, particularly in Asia.

In addition, Western production is running at nearly full capacity, which does not leave much scope for more increases in output.

NICKEL: halt. Despite some attempted rallies, the price remained around last week's levels, at between 8,070 and 8,100 dollars per tonne. But the market is showing some positive signs.

Demand for nickel used in the production of stainless steel is on the rise, especially in Japan. Meanwhile, Western output has been declining all year because of reduced mining in Australia and Colombia.

LME stocks grew by 894 tonnes to 35,262 tonnes.

TIN: consolidation. The metal consolidated its gains of the previous week, holding around 6,560 dollars per tonne.

Chinese exports dropped by 37 percent in the first quarter of 1996, the trading house GNI said. This is important news, since China is one of world's main exporters.

Reserves on the LME fell by 320 tonnes to 8,450 tonnes.

OIL: Brent North Sea oil prices jumped mid-week to more than 20.60 dollars per barrel, as doubts appeared in the market about the success of talks between Baghdad and the United Nations on the resumption of limited Iraqi oil sales.

Subsequent events confirmed this view. On Wednesday the United Nations and Iraq decided to suspend oil-for-food talks after failing to reach a deal, and further negotiations were pushed back until May.

The market was relieved to know that there would be no resumption of Iraqi oil sales for a few months at least. Iraqi crude oil has been barred from the international markets since the UN imposed a complete trade embargo on Iraq after the country invaded Kuwait in August 1990.

Resolution 986 allows Iraq to export two billion dollars' worth of oil every six months to finance food and medicines that would be distributed under UN supervision.

This would mean Baghdad could sell about 700,000 barrels of oil a day, a sufficient quantity to push crude prices lower in an already over-supplied market.

The United States has expressed strong objections to the signature of an accord. A senior US official said "Iraq is trying to turn a humanitarian exemption into a partial lifting of sanctions, and that is something we are not going to let happen."

Deputy Prime Minister Tareq Aziz on Wednesday accused the United States and Britain of trying to torpedo the deal.

But both UN and Iraqi negotiators were optimistic that an agreement could be reached. Iraqi negotiator Abdel Amir al-Anbari said that he was leaving for Baghdad "hopeful that the next time we will be more conclusive and we will tie up the deal."

At the end of the week, prices retreated in a downward correction to around 20 dollars a barrel.

RUBBER: Prices continue to fall, because of a lack of demand. The reference price fell by five pounds to 982.5 pounds per tonne.

COCOA: Cocoa prices bubbled up by about 30 pounds to settle at about 1,050 pounds per tonne, under the effect of purchases by American investment trusts. The buying did not seem to be driven by any particular motive other than intense activity on the coffee market.

However, supply remained more than plentiful. The General Cocoa company estimated that the Ivory Coast harvest would be 1.015 million tonnes. This would be one of the biggest ever harvests in the world's leading producer country.

On the other hand, some dealers feared that the West African harvest would fall next year after this year's bumper cocoa crop. This would mean that supply would not be able to satisfy burgeoning worldwide demand.

COFFEE: steaming. Prices soared to their highest level this year on the London futures market, amid frenzied buying by dealers who feared that Brazil's coffee plantations might be hit by frost as the winter season draws near.

The reference price for robusta coffee (delivery in July) rose by more than 150 dollars this week to more than 2,000 dollars per tonne.

Dealers were eager to take up positions before the onset of the cold season in Brazil (June and July). Coffee bushes are extremely sensitive to cold weather. In July 1994, the harvest was ravaged by frosts that decimated plantations in the world's leading coffee producing country. The Brazilian harvest was cut by half.

American speculators were keen to take up positions now that would provide a wide profit margin in the event of any future rise in coffee prices that would result from freezing temperatures in the Brazilian plantations.

The GNI trading house said that meteorologists were expecting cold weather to hit Latin America again this year, accentuating the risk of frosts in Brazil.

In addition, the market has grown extremely nervous because of low stocks of raw coffee held at roasting houses in consumer countries that resulted from two years of sky-high prices and low export consignments.

TEA: Demand picked up a little in the London auction houses and average prices rose by three pence to 105 pence per kilo.

SUGAR: Prices melted for the second consecutive week by about 25 dollars over the week to 340 dollars per tonne, their lowest level since December last year.

The market continued to groan under the prospect of bumper harvests that are expectedrom numerous exporting countries. Cuban production will be well above last year's levels. The GNI trading house said that this year's harvest has already risen above four million tonnes and was close to the 4.5 million tonnes that was the target level fixed by Havana.

But another leading producer Brazil, might well surprise the market with a smaller-than-expected harvest. The Brazilian government said that it would only export three million tonnes from four million last year.

VEGETABLE OILS: spurt. The price of soya rose on the American market, taking its lead from wheat prices that soared there as dealers feared a drop in the coming harvest. Dealers also expected demand for soya used in animal feed to increase because wheat prices had become so high.

On the Rotterdam market, soya oil rose by three guilders to 103 guilders per 100 kilos. Other oils rose too. Sunflower oil rose by 12 dollars to 625 dollars per tonne. Palm oil held firm at 572.5 dollars per tonne.

Grains: Fears of another poor wheat crop in the world's biggest exporting region, the United States, have sent prices soaring on the Chicago market. The contract for May climbed to above 6.60 dollars per bushel (27,216 kilograms). Some experts believe prices could hit 7.50 dollars.

The European markets, traditionally less volatile than US exchanges, have also begun to experience sharp upward swings. In London, the price of wheat rose by six dollars to 133 pounds per tonne, a high not seen since June 1993.

The International Grains Council (IGC) explained that the dry ground in the American Great Plains would affect the quality and quantity of the winter wheat crop.

Wheat seedlings, which were planted at the beginning of the winter, are being damaged by the lack of rainfall and humidity.

The IGC has revised downwards the estimate for the US crop from 63 to 61 million toes. An expert from the inter-governmental body, Bill De Maria, said it is "possible" that the crop will turn out even worse if US farmers decide to plant maize rather than spring wheat.

"Data on planting intentions indicate a sharp increase in the area of maize", at the expense of spring wheat, he said. More productive yields and high prices have encouraged farmers to grow maize.

In addition, European traders increasingly fear that Europe's wheat harvest will also be affected by a lack of humidity after a long and dry winter.

COTTON: Prices barely fluctuated, with the index of the Cotton Outlook magazine -- which reflects prices on US physical markets -- remaining around 0.82 dollars per kilogramme.

But the market is expecting a fall in the 1996 US harvest because of a reduction in the amount of land under cultivation for cotton in favour of maize and soya.

WOOL: steady. In Australia, prices steadied with the "Eastern" index holding around 547 Australian cents per kilogram. In Britain, prices fell by four pence to 444 pence per kilogramme.-AFP