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London Commodities:

Oil surges to five-year high

LONDON: Oil soared to its highest level since 1991 this week as suppliers failed to meet rocketing demand brought on by a biting tail end to winter in the United States and Europe.

But analysts said that this rise was no more than a temporary blip that would soon come to an end with a fall in prices. The threat of a flood of Iraqi crude on the international market might send prices into freefall if talks between Baghdad and the United Nations finally yield an agreement on the sale of Iraqi oil to fund purchases of food and medicine.

In addition, some dealers said they feared that under the current sky-high prices the OPEC countries might be tempted to step up production levels.

Among the other commodities, grains were star performers this week. Analysts predicted that American wheat stocks might fall below levels that have not been seen since the years of shortage immediately after World War II.

The Chicago market also enjoyed renewed interest from the speculative investment funds who have turned away from the US bond market since its fall one week ago.

GOLD: With the price of most other commodities up strongly this week, gold's performance was a disappointment to traders.

The price of gold, which early this year took to the heights, barely moved this week, ending around 394 dollars per ounce, roughly the same level as the previous Friday. Market experts expressed disappointment that gold had not followed the same direction as grains or crude oil. Early in the week, huge sales by producers weighed down on prices.

The trading house GNI, however, said there were grounds for optimism in the months ahead: the expected recovery in the world economy, rising commodities prices, the deficit is gold supply. "It could be argued that you have much of the combination that caused the 1970s rallies in the precious metals", said GNI.

SILVER: Like gold, silver did not take inspiration from the other commodities. It ended around 5.50 dollars per ounce, a similar level to the previous Friday. But as with gold, the fundamentals, such as the falling stocks held on the New York market, pointed to the potential for a take-off in prices.

PLATINUM: Platinum appears the most resilient of all the precious metals, shrugging off a spate of sales from Japan mid-week. It ended slightly above the previous week's levels, and is ready for a new rally, experts said.

COPPER: A revival of interest from investors in London and New York and buying from the Far East sent the price of copper upwards, more than reversing the losses of the previous week.

On the London Metal Exchange (LME), the three-month reference price rose by some 65 dollars to around 2,545 dollars per tonne. A sharp drop in the stocks held in LME warehouses, which fell by 14,275 tonnes to 305,100 tonnes, also gave copper prices a lift.

However, one London dealer said that "the market is not getting too excited on the upside yet" because of fears that it might be swamped with metal. GNI pointed to record output in Bahrain and a 5.3 percent increase in Russian output during the first three months of 1996 as evidence of abundant copper supplies worldwide.

LEAD: The price of lead bounced back from the past few weeks' losses, lifted by copper's gains and signs of continued healthy demand shown by a 2,100-tonne drop in LME warehouse stocks to 89,650 tonnes.

The metal advanced by 12 dollars to 813 per tonne.

ZINC: The price of zinc increased by five dollars to 1,086 dollars per tonne. Reserves on the LME grew by 725 tonnes to 624,675 tonnes.

ALUMINIUM: The price of aluminium fell by 11 dollars to 1,627 dollars per tonne, as early gains under the influence of copper were wiped out after a large rise in market reserves.

Stocks held in London Metal Exchange warehouses grew by 29,150 tonnes over the week to 778,075 tonnes. However, early in the week the International Primary Aluminum Institute published encouraging figures that showed a 99,000-tonne fall in stocks of unwrought metal held by producers around the world in February.

Sumitomo Corp. of Japan said in its annual report that world aluminum prices were likely to rise to 1,900 dollars per tonne in the first half of 1996, as consumers readjusted their stock levels.

NICKEL: The price of the metal was lifted by investor buying in the wake of copper's gains, rising by 150 dollars to 8,285 dollars per tonne. Russia's giant Norilsk nickel plant, the world's biggest producer of nickel, suffered a sharp cut in gas supplies on Thursday because of unpaid bills, ITAR-TASS news agency quoted Russian parliament officials as saying.

These officials said, however, that there was no indication if output might be affected. Norilsk increased nickel production by 3.0 percent in the first three months of 1996, compared with the same period last year, after a sharp jump in output in March. Management expects overall output in 1996 to be 3.0 percent above 1995 levels.

Stocks of nickel declined by 954 tonnes to 33,852 tonnes.

TIN: The metal benefited from continuing interest from investors, and advanced modestly by some 15 dollars to around 6,455 dollars per tonne. Stocks on the LME fell by 65 tonnes to 9,085 tonnes.

OIL: Short-term supply difficulties and cold weather in the United States and Europe that drove up demand for heating oil combined to spur oil prices on to new heights this week.

Brent North Sea crude hit a five-year high at 23.30 dollars per barrel on Thursday before slipping back again on Friday.

Contrary to regular market conditions, prices for delivery of stocks in the near-term rose above those for delivery at a later date. Dealers found it hard to come by reserves for immediate delivery.

The prospect of renewed talks between the United Nations and Baghdad on limited sales of Iraqi crude to finance humanitarian aid again influenced the market.

The latest round of talks was postponed from Thursday until Friday, which led dealers to suspect that the negotiations had run into problems. As a result, prices enjoyed a swift but temporary rise. The threat of Iraqi crude flooding the international market remains a real threat to price levels.

RUBBER: Weak demand and hefty stocks of rubber held by producers hit the rubber market this week, one dealer said.

In addition, the dormant period for rubber trees during which time the flow of sap stops (February to April) did not see a rise in prices this year, that shows just how high rubber stocks are.

Dealers did not expect any news to break during the coming days to verse this trend.

COCOA: The price of cocoa continued to rise this week, lifted by speculative buying from investment funds and a pick-up in demand in western Europe.

Last week, months of uncertainty were swept away and prices reached a peak of 1,030 pounds per tonne, before falling to 1,005 pounds late on Thursday. Cocoa's performance was equally impressive this week, particularly on Friday, and by the end of that day it was being traded at 1,044 pounds per tonne.

Figures published this week for German cocoa demand, that were in line with market expectations, confirmed the healthy rate of cocoa consumption in western Europe.

Germany's consumption of cocoa rose by 0.1 percent in the first quarter of 1996 compared with the previous three months.

COFFEE: damp. The excitement driving many commodities this week failed to take hold of coffee, which proved unable to recoup all of last week's losses. But it made some modest progress, ending the week at 1,840 dollar per tonne, compared with 1,830 dollars the previous Friday.

There was not much fresh news to move the market one way or another. Colombia revised downwards the estimate for the country's 1996 crop, to 12.5 million sacks, from 13.5 million forecast previously. But Bogota said it would not reduce exports, which should total 11 million sacks over the year.

TEA: The London tea auctions were closed this week for Easter, as was the market in Mombassa, Kenya. But trading did take place in Colombo, where prices fell slightly.

SUGAR: Prices continue to advance, despite the fact that world supply is well in excess of demand. But the rise was smaller than the previous week. The price of sugar rose to 390 dollars per tonne by the end of the week. Some speculative buying, but also trade purchases, gave a lift to prices. There is a short-term tightness of supplies on the London market, but world production is booming. Cuba has already produced more sugar so far this year than it did in the whole of 1995, the official Cuban media has reported. Havana still believes it will achieve the target crop of 4.5 million tonnes.

Meanwhile, exports from Thailand rose strongly in February to 617,800 tonnes, compared with 217,700 in the same month of 1995.

VEGETABLE OIL: Prices increased sharply early this week to levels not seen since last November. Soya followed maize, itself buoyed by rising wheat prices. Profit-taking then wiped out some of the gains. In Rotterdam, the price of soya rose to 100 guilders per 100 kilograms. Palm oil climbed to 575 dollars per tonne and sunflower advanced to 630 dollars per tonne.

GRAINS: The situation in the United States continued to dominate world markets. The US agriculture minister revised down his estimate of global stocks for the year 1995/96. He predicted that grain reserves could hit lows not seen since 1947/48. As a result, the market lept ever higher before heavy rains on the American Great Plains brought on some profit-taking on Thursday.

Some analysts suggested that farmers might step up their wheat production at the expense of maize plantations.

European markets were somewhat more calm but still held at high levels. In London, wheat remained above 125 pounds per tonne.

COTTON: shivers. Cotton continued to climb this week, as worries surfaced about the quality this year's harvest. The fibre also gained from the upward movement in prices of other commodities.

The Cotton Outlook index rose by one pence to 84 pence per kilo.

WOOL: There were no auctions in Australia this week, because of Easter public holidays. In Britain, prices held at 444 pence per kilo.-AFP