Industrial commodities rise sharply

Hit over three-and-a-half month highs, analysts eye Fed meeting in the coming week for next move

Global commodities gained sharply today after the European Central Bank (ECB) announced an unlimited bond-purchase plan to combat the Euro zone debt crisis, which strengthened prospects of revival in their demand.

Industrial metals hit a three-and-a-half month highs as traders booked heavily before proceeding on the week-end holiday. While copper jumped around three per cent to settle at $7,844 a tonne, aluminium and zinc followed suit and closed the week at $1,988 a tonne and $1,915 a tonne, respectively.

Setting the trend, crude oil for October delivery was at $95.66 a barrel, up 13 cents in electronic trading on the New York Mercantile Exchange in pre-market sales on Thursday. The contract climbed 17 cents on Wednesday to $95.53, the highest close since August 31. Similarly, brent oil for October settlement on the London-based ICE Futures Europe Exchange was at $113.77 a barrel, up 28 cents. Energy sector also got help from supportive stockpile data. The energy department of the United States reported 7.4 million barrels decline in crude stockpiles last week to the lowest level in five months.
 

GAINING STRENGTH Price change of various metals and rupee
	Sep 06, ‘12	Sep 07, ‘12	%chg
Copper ($/tonne)	7,670.50	7,844.00	2.26
Zinc ($/tonne)	1,873.00	1,915.00	2.24
Brent ($/bbl)	112.55	114.01	1.30
Aluminium ($/tonne)	1,963.00	1,988.00	1.27
Nickel ($/tonne)	16,105.00	16,155.00	0.31
CRB Metal Index	853.76	852.28	-0.17
Gold ($/oz)	1,700.28	1,696.45	-0.23
Silver ($/oz)	32.64	32.30	-1.04
Rupee	55.65	55.40	-0.45

ECB President Mario Draghi said on Thursday that policy makers agreed to a bond-purchase programme to reduce interest rates on struggling Euro zone economies and help prevent their exit from the Euro bloc. The decision, ahead of the US Federal Reserve’s meeting during the middle of this month, has changed the market sentiment.

“All eyes are on the Fed now, which has never disappointed the market. Hence, some positive developments are expected in the Fed’s September 12 meeting to bolster the global economy and financial health of companies. Consequently, consumption of base metals would steadily increase now,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

Fed chairman Ben Bernanke in last month’s FOFM meeting did not deny the possibility of a third round of quantitative easing (QE3) to support the US economy. QE3, along with ECB’s decision for unlimited bond purchases, would leave more money in people’s hand to spend on avenues like metals and energy. Also, more release of dollars into the market would translate into a decline in the US currency, resulting into higher investment in commodities.

“The way commodities have behaved today indicates the upward march would continue in future,” said Thiagarajan.

Following the 2008 crisis, the S&P GSCI Industrial Metals index peaked in February 2011 and has since declined 29.2 per cent, compared to an increase of 13.9 per cent in the S&P GSCI Precious Metals Index (since the end of February, 2011). On a 12-month basis, the S&P GSCI Industrial Index is the worst performing major sector index ,with a decline of 22.6 per cent.

“Reflecting declining prices and ample supplies, headlines of canceled industrial metals mining projects have appeared more frequently in Q3. Declining demand, notably from China, is often cited as a reason for industrial metals’ weakness,” said Michael McGlone, senior director, S&P Dow Jones Indices.

The latest unemployment data released by the US today showed a marginal dip in the employment rate to 8.1 per cent for August, against 8.3 per cent in July. Also, non-farm payrolls data remained at 96,000 as against the common consensus of 125,000 for August, as compared to 141,000 in July.

According to a commodity analyst, the US data is negative for the greenback and, hence, supports base metals’ further upward move. A slight correction in precious metals, however, cannot be ruled out.

Emkay Commotrade’s Commodity Analyst Sulka Dhargave sees copper for delivery in November on the Multi Commodity Exchange (MCX) to see an upside move till ~443 a kg and support at ~438 a kg from the current level of ~440.8 a kg. Similarly, lead for delivery in September on MCX could see upside march till ~116.5 a kg from the current ~113.9 a kg.