960420

London commodities: dry weather

may effect sowing of spring wheat

LONDON: Fears are mounting on the international wheat market of a weak 1996 harvest, as seedlings in the fields of North America and Northern Europe suffer the effects of this past winter's cold and dry weather.

Prices climbed on the Chicago futures market, the world's largest g rains exchange, and the London market also threw off its usual caution. Dry weather in the American Midwest and in Europe has already damaged the winter crop seeds that have been planted, and it is feared it might affect the spring wheat harvest.

A poor crop in the northern hemisphere would be a catastrophe after the appalling wheat and maize harvests in 1995, which sent world stocks crashing. In contrast, another agricultural commodity, sugar, saw prices dive this week, because of the prospect of huge exports from India, the world's biggest producer, and from Thailand and Cuba, two key exporters.

Cocoa held steady despite the European Commission's proposals to ease rules on the cocoa content in chocolate.

Under these new rules, each of the 15 member states would be able, if it chose, to use up to five percent of vegetable fats other than cocoa butter in making chocolate. Producing countries, which fear cocoa imports by European countries will fall as a result, have already strongly protested at the proposals.

GOLD: It seems an eternity since the market was last in really sparkling form. But in fact it was only three months ago that gold soared to a six-year high of 420 dollars per ounce. And now the precious metal is worth less than 390 per ounce.

A wave of depression swept across the gold market this week, pushing the price down by over five dollars. Experts attributed the movement to "technical weakness".

"Sentiment in the world of precious metals is not very positive at the moment", said an analyst from GNI trading house, without elaborating. Outside "technical factors", the market may have been affected by the possibility that the International Monetary Fund (IMF) might sell some of its gold reserves to help finance an easing of the debt burden borne by the world's poorest countries.

This week, Britain's Chancellor of the Exchequer Kenneth Clarke expressed support for the proposal aired by IMF Managing Director Michel Camdessu s. But countries such as Germany, France and Japan are not in favour of the idea.

SILVER: Like gold, silver retreated in the wake of selling on the US market, losing 20 cents to 5.30 dollars per ounce. But the deficit between world output and demand continues to bite into reserves held on the New York market and make silver an attractive buy. PLATINUM: The price of this precious metal plunged to its lowest point so far this year, at 400 dollars per ounce, dragged downwards by gold and silver.

Dealers are concerned about the growth in platinum sales by Russia, which has large strategic stocks of the metal, GNI trading house said. COPPER: Copper prices advanced modestly this week, as positive news on US construction activity fuelled gains on the Comex market in New York and supported prices in London. On the London Metal Exchange (LME), the three-month reference price rose by some 10 dollars to around 2,570 per tonne. GNI trading house said the market had welcomed bullish data on US house-building. The American construction sector is a major consumer of copper, used in piping and wiring, and in many appliances often purchased with a new home. But GNI experts said that while the metal could hit 2,600 dollars in the near future, after that "the upside is limited". Copper supplies are abundant worldwide, with growing production in the Americas. Meanwhile, the threat of strike action at the world's biggest copper mine, the Chuquicamata mine in Chile, which had supported prices before, now seems to be receding.

Stocks held in LME warehouses fell by a modest 2,375 tonnes to 302, 725 tonnes.

LEAD: The price of lead dipped this week, in a market with no fundamental news. LME warehouse stocks rose by 275 tonnes to 89,925 tonnes. The metal fell by two dollars to 807 per tonne.

ZINC: The price of zinc fell by some 30 dollars to around 1,055 dollars per tonne, amid general weakness on the base metals market. There were reports that Cominco, the big Canadian mining group, is considering a plan to more than double zinc output at a refinery in Peru to 230,000 tonnes a year.

Reserves on the LME grew by 600 tonnes to 625,275 tonnes. ALUMINIUM: The price of aluminium plunged this week as traders worried about burgeoning market reserves, now at a 10-month high.

Three-month aluminium prices fell by some 40 dollars to around 1,595 dollars per tonne, a low not seen since the end of January. Stocks held in London Metal Exchange (LME) warehouses grew by 26,300 tonnes over the week to 804,375 tonnes, the highest level seen since June 1995. Since the end of last year, aluminium reserves have grown at a rapid rate because of a strong rise in world output and the end of a worldwide agreement limiting production.

NICKEL: The price of the metal fell this week by 265 dollars to 8, 075 per tonne. Sentiment was not helped by a 516-tonne rise in stocks of nickel to 34,368 tonnes. Meanwhile, a forecast from the International Nickel Study Group that the world nickel market would be broadly in balance this year also worried traders.

Analysts at Macquarie Equities, part of the Australian banking group, pointed out that since stocks have fallen this year by some 11,000 tonnes, the statement implied there would be a surplus in the metal for the rest of 1996.

TIN: The metal benefited from a surge of interest among speculative investors and soared to a five-and-a-half month high on Wednesday of 6,560 dollars. At the end of the week, after some profit-taking, tin ended some 70 dollars above the previous week's levels at around 6,540 dollars per tonne. Stocks on the LME fell by a healthy 315 tonnes to 8,770 tonnes.

OIL: Oil prices started the week at their high levels at more than 20 dollars per barrel, in the wake of huge speculative purchases at the end of last week. Dealers expected an imminent conclusion to talks between Iraq and the United Nations on the first sales of Iraqi crude since the Gulf War. But the talks dragged on and the leader of the Iraqi delegation complained of the intransigence of the UN on Monday. It seemed that a successful outcome to the talks was ever more unlikely.

At mid-week prices tumbled to about 18.50 dollars per barrel as dealers put their money on a speedy end to the negotiations.

An analyst at the BZW merchant bank, Mark Flannery, said that "it looks like a deal will happen". He added that this would "probably" within a few days, despite continued disagreement on how to put resolution 986 of the UN security council into place. Agreement would allow the first exports of Iraqi crude for five years in exchange for humanitarian aid in the form of food and medicines for Baghdad.

Under the terms of the agreement, Iraq would be able to export about 700, 000 barrels of oil per day. A flood of oil of this size would be enough to depress prices in a market already creaking under the effects of over-supply, dealers said.

In a further development, the president of OPEC, the Algerian Amar Makhloufi, and his secretary-general, Rilwanu Lukman of Nigeria, flew to Baghdad on Wednesday to discuss the possibility of releasing Iraqi oil on the international market. This visit, the first time a delegation from the oil cartel has visited Baghdad since Iraqi troops invaded Kuwait in August 1990, has made the return of Baghdad as an exporting member country of the group more likely, analysts said. RUBBER: Weak demand sent prices down to 987.5 pounds per tonne. A London analyst said that "demand has not been as good as it has during the past two years". In the United States, the Goodyear tyre giant had gone so far as to postpone several contracts. Thailand was alone in being able to hold up well under the market conditions.

COCOA: The price of cocoa retreated from the last two weeks' gains to around 1,020 pounds per tonne, as market-players consolidated positions and engaged in profit-taking. The market did not react to the European Commission's proposals to authorise the use of five percent of vegetable fats other than cocoa butter in making chocolate. Dealers believe that this proposal merely brings the existing situation into the official arena. Under the proposals, each of the 15 EU states would reserve the right, however, to forbid their respective national chocolate makers from using anything other than cocoa butter.

The type of vegetable fat would have to be clearly marked on packaging.

Chocolate made in the European Union must contain at least 35 percent cocoa powder and 18 percent cocoa butter. But seven member states - Britain, Denmark, Finland, Ireland, Sweden, Austria and Portugal - have the right to make chocolate with vegetable oils instead of cocoa butter.

COFFEE: The approach of the winter season in Brazil failed to excite much attention on the market. A cold front did appear on the southern border of the country but remained too far to the south to threaten the plantations of the state of Parana. Coffee bushes are extremely vulnerable to frost. A cold snap in June and July 1994 devastated the harvest of the world's largest producer. But the threat lies too far ahead to worry investors on the market. Prices remained steady at between 1,850 and 1,870 dollars per tonne.

TEA: Prices fell at the London tea auctions as good-quality African leaves became scarce. The price of medium-quality tea fell by 1.5 pence to 102 pence per kilogram.

SUGAR: Prices tumbled under the effect of a wave of selling by investment trusts and slipped by 25 dollars to 365 dollars per tonne. The market was hit by the prospect of bumper harvests in numerous exporting countries. Cuba planned to reap a harvest in excess of four million tonnes. Thailand, India and Brazil have already turned out or will produce large quantities of sugar this season. Experts said that supply, which has been unable to meet demand of late, should take off, and dealers decided to quit the market before it becomes too late.

GNI trading house said that "anticipated Indian sales are still a powerful and negative influence" on the market. However, this may be offset by Brazilian exports that are likely to be smaller than they were last year.

VEGETABLE OILS: After a slow start to the week, the price of soya shot up on the American market and took prices on the Rotterdam market skywards in their slip-stream. Dealers believed that the 1996 crop in the United States, the world's leading producer, would be smaller than had previously been expected. Farmers there have decided to sow maize (corn) instead of soya because of high maize prices and favourable weather conditions.

In addition, demand remained strong for livestock feeds. Stocks of wheat and maize, that are alternative foodstuffs for farm animals, were too low to give any let-up in demand for soya.

Soya settled at 100 guilders per hundred kilos on the Rotterdam market.

GRAINS: The fever seen last week on the Chicago market abated initially, as investment funds launched into profit-taking, which pushed prices lower.

Weather forecasts for the American Great Plains appeared reassuring, with rains expected to bring relief to the dry crops there in coming weeks.

But those investment funds then began buying once again. Some analysts pointed to new weather forecasts that predicted less plentiful rain as the reason. Others said the reaction was purely "emotional".

The dry weather in the American Mid-West this winter has already damaged the winter crop seeds that have been planted, and it might affect sowing of the spring wheat.

In London, similar weather-related fears emerged about the European crop. The price of wheat rose by four pounds to 129 pounds per tonne, while barley gained two pounds to 115 per tonne.

COTTON: Prices fell after last week's excitement, and the Cotton Outlook magazine index (of physical market prices) dropped by two cents to 0.8 2 dollars per kilogram.

But prices on the futures market in New York held steady after news of a large Japanese purchase of US and Australian cotton. At the end of the week, New York prices advanced after a surge in grains prices and fears that less land will be cultivated for cotton crops in the United States in 1996.

WOOL: After a long Easter break in Australia, auctions started again in a calm market. In Britain, prices held at 444 pence per kilogram.