Energy Futures Plunge; EIA Report Aids to Limit Losses

Market Highlights

ASIA-PACIFIC REGION

China’s PMIs decline in December

China’s manufacturing activity decelerated to the slowest pace in four months in December amid economic reforms aimed to sustain expansion of the world second-largest economy. The PMI came at 51, defying expectations of drop to 51.3 and compared to a previous month’s reading of 51.4. Non-manufacturing PMI also was on the negative side. A gauge of non-manufacturing activity slumped to 54.6 last month compared to 56.0 in November. Meanwhile, both indicators remained above the threshold of 50 that separates expansion from contraction.

EUROPE

European manufacturing activity improves

The final reading of the manufacturing PMI in the Eurozone was in line with forecast at 52.7, unchanged from November’s figure. Meanwhile, manufacturing PMIs in Spain and Italy exceeded estimates. Italian PMI came at 53.3 compared to a forecast of 51.8 and November’s reading of 51.4, while Spanish PMI surpassed the mark of 50, being at 50.8 versus expectations of 49.9 and previous reading of 48.6.

NORTH AMERICA

U.S. home sales miss forecast; consumer confidence beats estimates

Pending home sales increased less than forecast in November, adding to signs that rising borrowing costs are weighing on the housing market recovery. Pending home sales rose 0.2% in November, the first advance in the last six months, after plunging 1.2% in the preceding month. Experts called for a climb of 1.1% in November. At the same time, the Conference Board Confidence Index soared to 78.1 in December after a drop to 72.0 in November and compared to expectations of a rise to 76.5. Manufacturing data also added to optimism, with ISM manufacturing PMI coming at 57 in December versus a forecast of 56.8.

Precious Metals Rally on Friday on Physical Demand Hopes

Gold touched more than a five-year low in the last trading session in 2013, diving below a psychologically important level of $1,200 per ounce. However, a sharp decline mollified the selling pressure thus aiding the precious metal to surpass the mark of $1,200 per ounce latter in the day. The following trading sessions proved to be more positive for gold, with the metal rising to a two-week high on Friday amid signs of strengthening physical demand due to lower prices.

A closer examination of physical demand numbers unveils that a 28% slump in gold prices throughout 2013, the biggest drop since 1981, stimulated consumption in China and India. In 12 months ended September 30, China’s demand for jewelry, coins and bars soared 30% to 996.3 metric tonnes, whereas consumption in India, former biggest buyer, rose 24% to 977.6 metric tonnes, reported the World Gold Council.

Silver slumped to the lowest level since June on Wednesday but alike gold it managed to recover losses in the following session and finished the week with a 3.73% gain. Silver’s advantage against its more expensive peer remained in the stronger Indian demand after several consecutive increases in import duties on the precious metals. India silver imports more than doubled in the first half of 2013, reaching about 3,000 tonnes compared to 1,900 tonnes in the whole 2013, according to Thomson Reuters GFMS.

Platinum and Palladium traded in tandem with silver and gold, diving to a six-month low on Wednesday and rebounding in the next sessions. The platinum-group metals continued to enjoy support pertaining to growing demand from automobile industry at a time when supply remains constrained by labour disputes in South Africa and declining Russia’s stockpiles.

Industrial Metals Mixed amid PMI Releases

Aluminum started the week on the positive note, hitting an eight-week high on Monday as positive U.S. data spurred demand for the lightweight metal. However, aluminum came under demand-side pressure as China’s manufacturing PMI slumped to a four-month low in December amid economic reforms. At the same time, hefty surplus of the metal also pushed the prices lower. Global surplus is expected to total around 994,000 metric tonnes in 2013 compared to 883,000 estimated earlier, according to Sumitomo Corp.

Copper performed large swings on final PMI readings across the globe. The red metal attained almost a one-year high early on Wednesday, erasing previous losses caused by a weaker-than-expected China’s PMI reading. Notwithstanding a boost received from strong PMI reading from Europe and the U.S., the base metal ended the week at a six-month low as a drop in China’s non-manufacturing PMI fuelled demand concerns from the second-largest economy.

Nickel remained well-supported by a looming ban on ore exports in Indonesia that accounts for about 18-20% of the global nickel supply. The ban on nickel-ore exports will come in force on January 12 and is intended to boost value of the country’s exports by stimulating local processing of the base metals. Meanwhile, LME inventories gained 0.85% last week and remained almost 84% higher than in the same period last year.

Zinc halted its rally last week amid negative flow of data from China. However, the industrial metal may catch momentum on falling LME inventories. LME supplies added 3.67% but stood about 24% lower than in the beginning of 2013.

Energy Futures Plunge; EIA Report Aids to Limit Losses

WTI and Brent oil were gradually retreating throughout last week as positive U.S. data added to speculation that the Fed will taper its record stimulus programme further. Weaker-than-expected numbers from China also were a negative factor for energy prices. Brent oil was additionally weighed by a possible improvement in Libya’s exports. Libya, the largest holder of oil reserves in Africa, said that its Al Sahara oil field agreed to restart production for two weeks starting from January 1. Meanwhile, Libya pumped near 210,000 barrels per day last month, the lowest amount since 2011 amid protests at some of the oil fields.

Later in the week, WTI and Brent oil pared losses thanks to the EIA report that came later than usual due to holidays. U.S. crude oil inventories dropped 7.01 million barrels to 360.7 million barrels in the week ended December 27. This was a much bigger drop than economists had expected; the forecast was a fall of 2.83 million barrels. In the preceding week, the U.S. stockpiles also registered a decline of 4.70 million barrels also more than 1.90 million projected by analysts.

Natural gas erased some of the previous losses last week due to a decline in the U.S. inventories. Natural gas storage dropped 97 billion cubic feet in the week ended December 27, with total inventories plunging below the five-year average. However, the fall was smaller than projected by experts who forecast a drop of 125 billion cubic feet. Meanwhile, consumption of natural gas amounted 177 billion cubic feet in the preceding week and 285 billion cubic feet in the week ended December 13.

Heating oil soared after the EIA report showed that the U.S. inventories sagged the most since 2003. Distillate fuel inventories, which include heating oil and diesel, dropped 21% to 3.31 million barrels in the week ended December 27.

Farm Commodities Mostly Lower on Improving Weather in South America

Wheat ended the year on a high note amid weather concerns in Russia where snow cover continued to narrow thus increasing vulnerability of the seedlings to the winter cold. Having traded lower in the middle of the week, the grain skyrocketed to a two-month high on Friday after the MDA weather said that as much as 20% of winter wheat in the Great Plains may be impacted by the freeze as temperatures may decline to minus 23 Celsius in the next few days.

Corn unlike wheat was retreating during the last trading sessions of 2013 as improving weather conditions in Argentine and Brazil are likely to boost crop yields. At the same time, the grain managed to close higher on Friday due to wheat’s strength that soothed the effect of weaker-than-expected U.S. export data at 154,500 tonnes, a 90% drop from the previous week, and a decline in U.S. ethanol production by 13,000 barrels per day.

Soybeans also felt pressure from rains and lower temperatures in Argentine and Brazil. Meanwhile, Informa revised down its Argentine crop estimate despite improved weather by two million tonnes to 57.5million tonnes but it also revised up its U.S. forecast by 31 million bushels to 3.329 billion bushels. Moreover, prospects of bumper crops in Brazil are increasing worries that China may start cancelling orders of the U.S. oilseed to buy cheaper South American supplies.

Coffee was expected to follow a downward trend of its peer, Robusta variety, that fell after touching record levels due to an artificial undersupply from Vietnam, the world-biggest producer. However, Arabica and Robusta coffee did not rush to resume their long-lasting losing streak as they found support on a decline in India’s output. India’s Coffee Board reported that the country’s coffee harvest will drop 10.2% this season.

EXPLANATIONS

Commodities

• Gold - COMEX active contracted (USD/t o.z.)

• Silver - COMEX active contract (USD/t o.z.)

• Platinum - New York Mercantile Exchange active contract (USD/t o.z.)

• Palladium - New York Mercantile Exchange active contract (USD/t o.z.)

• Aluminum - Active contract of primary aluminum of minimum 99.2% purity at the LME (USD/MT)

• Copper – Active contact of electrolytic copper at the LME (USD/MT)

• Zinc - Active contract of zinc od minimum 99.995% purity at the LME (USD/MT)

• Nickel – Active contract of nickel of 99.8% purity at the LME (USD/MT)

• Crude oil - light, sweet crude oil active contract on the New York Mercantile Exchange (USD/bbl.)

• Brent oil - Brent oil active contract on the ICE Futures Europe (USD/bbl.)

• Natural Gas - natural gas active contract on the New York Mercantile Exchange (USD/MMBtu)

• Heating oil - heating oil active contract on the New York Mercantile Exchange (USD/gal.)

• Wheat - wheat active contract on the Chicago Board of Trade (cents/bu)

• Corn - corn active contract on the Chicago Board of Trade (cents/bu)

• Coffee - benchmark Arabica coffee active contract on the NYB-ICE Futures Exchange

• Soybeans - active contract on the Chicago Board of Trade (cents/bu)

Indices

• S&P GSCI Precious Metals Total Return Index - commodity group subindex composed of gold and silver; the index reflects return on underlying commodity futures price movement

• S&P GSCI Industrial Metals Total Return Index - commodity group subindex composed of futures contracts on aluminium, copper, lead, nickel and zinc

• S&P GSCI Energy Total Return Index - commodity group subindex composed of futures contracts on crude oil, Brent oil, RBOB gas, heating oil, gas oil and natural gas

• S&P GSCI Agriculture Total Return Index - commodity group subindex composed of futures contracts on wheat, red wheat, corn, soybeans, cotton, sugar, coffee and cocoa

Indicators

Long-term price forecasts - aggregated price forecasts based on predictions of 20 international banks forecasts

USDA Wasde Total Estimated Inventories (Today) - current level of inventories of wheat in 1000 MT, corn in 1000 MT, soybeans in million bushels and green coffee in 1000 bags