Commodities start 2013 with a bang
Commodities start 2013 with a bang
"The commodities markets have started the new year with a bang," said Commerzbank analyst Eugen Weinberg.
"The main reason cited for this is the agreement achieved in the fiscal dispute in the US, though growing economic optimism and risk appetite, a weaker US dollar and the expansionary monetary policy pursued by central banks are likely to lend additional support to the upswing.
"We thus look ahead to the year 2013 with great optimism. This will also be good news for most businesses, as prices are being driven above all by robust demand."
The fiscal deal was seen as a step, albeit a temporary one, toward correcting US public finances, which are suffering from a huge annual deficit and accumulated mountain of debt.
Traders also digested December's US non-farm payrolls report which came in largely as expected, showing modest job growth, while the American economy's huge services sector showed a surprising expansion.
OIL: Prices jumped following news that the United States — the world's biggest consumer of crude oil — has avoided harsh "fiscal cliff" measures that had threatened to plunge it back into recession.
However, while Democrats and Republicans passed a compromise, they only delayed the imposition of spending cuts for two months, meaning another debilitating stand-off is almost certain at the end of next month.
"Relief that the US avoided its fiscal cliff pushed Brent crude to a two-month high at the start of the New Year," said analyst Gary Hornby at Inenco.
"Although the deal was cobbled together at the last minute, oil prices rose as the alternative was much worse."
On Wednesday, the first trading day of 2013, Brent hit $112.90 per barrel — its highest level since mid-October. New York crude meanwhile touched $ 93.87, which was a mid-September pinnacle.
The oil market has since retraced some of its gains after minutes from the Federal Reserve's December policy meeting indicated that its quantitative easing stimulus policy could end sooner than expected.
Prices also pulled back somewhat on growing concerns over further political wrangling in Washington in the coming months.
There are big worries about the lifting of the debt ceiling, also at the end of February, with analysts saying the US could witness a repeat of the row in summer 2011 that saw Washington's credit rating downgraded for the first time.
"Oil prices have begun to ease back slightly, with the euphoria over the US budget deal fading away and the threat of a possible downgrade from the big three ratings agencies as well as high oil production levels," added Hornby.
By Friday on the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for delivery in February climbed to $ 92.65 a barrel from $90.97 a week earlier.
On London's Intercontinental Exchange, Brent North Sea crude for February gained to $ 111.22 a barrel from $110.72 the previous week.
PRECIOUS METALS: Gold faced a rollercoaster ride, soaring to $1,694.81 on Wednesday to the highest level since Dec. 18, as the market was driven by optimism over the fiscal cliff breakthrough deal.
However gold plunged on Friday to $ 1,625.85 — a low point last seen on Aug. 21 — as the Federal Reserve minutes dampened concerns over rising inflation.
Sister metal silver faced a similar fate, soaring as high as $ 31.48 on Wednesday before diving to $ 29.23 on Friday.
Glamorous metal gold is regarded as a safe store of value in times of elevated inflation.
"Gold has softened a little on US dollar strength now that the initial bout of euphoria over the deal to avert the fiscal cliff has passed," said Ross Norman, head of London-based bullion broker Sharps Pixley.
He added: "Gold is seen primarily as an inflation hedge and a wealth preserver and to that extent we are seeing some some investors exiting gold."" By late Friday on the London Bullion Market, gold dipped to $ 1,648 an ounce from $ 1,657.50 a week earlier.
Silver slid to $ 29.32 an ounce from $ 30.15.
On the London Platinum and Palladium Market, platinum rose to $ 1,557 an ounce from $ 1,527.
Palladium fell to $ 689 an ounce from $ 675.
BASE METALS: Base or industrial metals scored multi-month peaks in the first trading week of 2013, as traders celebrated the fiscal cliff deal and upbeat Chinese data.
"Despite the meager progress the politicians made, markets are rejoicing," said INTL FCStone analyst Edward Meir.
"Base metals are up sharply, with copper up by about $ 270 per ton and now at the $ 8,200 mark. There are good gains in the rest of the group as well, with lead and tin in breakout mode."
Sentiment was also boosted after official data showed that China's manufacturing activity expanded in December for a third straight month, adding to signs the world's number two economy is emerging from a prolonged downtrend.
The official purchasing managers' index (PMI) stood at 50.6 in December, unchanged from the previous month. A reading above 50 indicates expansion.
By late Friday on the London Metal Exchange, copper for delivery in three months soared to $ 8,116.50 a ton from $ 7,888 a week earlier.
Three-month aluminum rallied to $ 2,090 per ton from $ 2,067.
Three-month lead grew to $ 2,365.24 a ton from $ 2,325.
Three-month tin rose to $ 23,975 a ton from $ 23,252.
Three-month nickel increased to $ 17,585 a ton from $ 17,150.
COFFEE: Coffee prices forged seven-week peaks on speculative buying interest but finished the week with mixed fortunes.
By Friday on NYBOT-ICE, Arabica for delivery in March eased to 145.80 US cents a pound from 145.85 US cents a week earlier.
On LIFFE, Robusta for March gained to $ 1,937 a ton from $1,907 a week earlier.
COCOA: The market slid on the back of plentiful supplies of the commodity which is mostly used to make chocolate. By Friday on LIFFE, London's futures exchange, cocoa for delivery in March dropped to 1,417 pounds a ton from 1,445 pounds a week earlier.
On New York's NYBOT-ICE exchange, cocoa for March decreased to $ 2,213 a ton from $ 2,262 a week earlier.
SUGAR: Prices hit multi-week highs after the fiscal cliff deal, but ended in negative territory on expectations of rising output from key producer Brazil.
By Friday on LIFFE, the price of a ton of white sugar for delivery in March fell to $ 511.60 from $ 522 a week earlier.
On NYBOT-ICE, the price of unrefined sugar for March decreased to 19.00 US cents a pound from 19.45 cents the previous week.
World Bank shareholders approve $13 billion capital increase
- Capital increase follows three years of negotiations
- Increase of $7.5 billion for main institution and $5.5 billion for IFC
World Bank shareholders approved a “historic” increase in the bank’s lending capacity late on Saturday after the United States backed a reform package that curbs loans and charges more for higher income countries like China.
World Bank President Jim Yong Kim said neither China nor any middle income countries was happy about the prospect of paying more for loans, but they agreed because of the overall increase in funds available.
The agreement, which also increase shares and voting power to large emerging market countries like China, was “a tremendous vote of confidence” in the institution that came after three years of tough negotiations, Kim said.
“World Bank Group bureaucrats don’t often jump around and high-five and hug each other,” Kim told a small group of reporters following the Spring meeting.
He said the increase was needed because even with the end of the global financial crisis, the bank has been called on to provide funding to address a new series of challenges facing poor countries, like climate change, refugees, pandemics, “all new things for us.”
The increase provides an additional $13 billion in “paid in” capital: $7.5 billion to the main institution and $5.5 billion to the bank’s private financing arm, the International Finance Corporation.
Kim said the increase will allow the bank to ramp up lending to an average of $100 billion a year through 2030, from $60 billion in 2017 and an expected $80 billion in 2018.
Countries will have five years to provide the funds, but can ask for a three-year extension. The last increase occurred in 2010 and added $5 billion to the bank’s capital and $200 million for the IFC.
The United States, the institution’s biggest shareholder, rejected the World Bank request in October and the administration of US President Donald Trump has argued that multilateral lending institutions should graduate countries that have grown enough to finance their own development, like China.
But US Treasury Secretary Steven Mnuchin on Saturday said Washington supports the increase because of the reforms to lending rules.
“I look at this as a package transaction... we support a capital increase on the World Bank, along with the associated reforms that they’re talking about making,” Mnuchin told reporters.
The increase requires legislative approval, but Mnuchin said he was hopeful Congress would back the plan. Kim also said he has had contact with representatives from both parties and received strong support.
In a statement to the World Bank’s governing committee, Mnuchin applauded the plan to “significantly shift lending to poorer clients.”
While he did not mention China by name, Mnuchin applauded the shift to a “new income-based lending allocation target and the re-introduction of differentiated pricing” for loans — meaning wealthier countries would pay higher interest rates.
“The latter will incentivize better-off, more creditworthy borrowers to seek market financing to meet their needs for development,” he said.
Mnuchin said the new arrangement, including for the IFC, “frees resources for countries that don’t have sustainable access to private capital markets.”P
China’s Vice Finance Minister Zhu Guangyao said Beijing supported increasing World Bank resources but had reservations about the agreement for changes in lending policies.
“We are concerned about some of the policy commitments in the capital package, such as those on graduation, maturity premium increase for loans and differentiated loan pricing based on national income per capita,” he said in a statement.
“We hope that the management take different national circumstances into full account in the implementation of the graduation policies... to ensure that these policies will not impede cooperation between the (bank) and upper middle income countries.”
Kim acknowledged that lending to China would decline, but only gradually. That means “whatever borrowing they do has to be as impactful as possible.”
And he noted that because of the capital increase, “we will be able to maintain volumes for middle income countries as a whole.”
Zhu said the capital increase is “a concrete measure to support multilateralism” at a time when “anti-globalization sentiments, unilateralism, protectionism in trade” were creating uncertainties in the global economy.