Commodities Rally Runs Out Of Steam
The recent rally in metal prices (except gold and silver) came to a sudden halt on Friday as the prices of iron ore, copper, lead nickel and zinc slid.
The slide came despite another bout of weakness for the US dollar, which fell to near three year lows, and normally should help commodity price, which it did for gold.
Oil fell on the day, but ended higher for the week thanks to Hurricanes Harvey and Irma.
The emergence of selling in the metals group will be overshadowed by fears about the impact of the two hurricanes on the US economy, but the impact will eventually get through to locals in Australia, especially if iron ore falls again this week, followed by other commodities.
The US Dollar Index (a measure of the greenback’s performance against six other currencies) fell 0.5% on Friday, to 91.337, for a weekly loss of 1.6%.
That in turn saw the Aussie dollar jump to a two year plus high of 81.20 US cents, before falling back to around 80.60 US cents, up three quarters of a cent over the week.
US bond yields fell sharply last week to end at just over 2.05%, the largest weekly fall for four months, and the lowest figure for the year so far.
Not even solid Chinese import figures for iron ore, coal, copper and oil could help commodities prices on Friday as selling set in in China, Europe and the US.
Iron ore prices fell below $US75 a tonne (on a cfr northern China basis) on Friday against the background of a weak futures market in China.
The Metal Bulletin’s 62% Fe Iron Ore Index dropped 1.6% to $74.36 a tonne (a fall of $US1.25 per tonne). That was down 5.7% from the previous week’s close of $US78.91 a tonne.
The looming advent of Hurricane Irma and the lingering impact of Harvey saw US West Texas Intermediate crude futures drop more than 3% to $US47.57 a barrel on Friday. That left prices up around 0.4% for the week, but Irma could knock prices even lower this week.
In London, Brent, the international oil benchmark, was largely spared this selling pressure, falling just 0.13% on the day to $US53.71, but up 2% for the week.
Comex gold notched a third weekly gain in a row, settling at their highest level in a year with the US dollar and US Treasury yields trading lower for the week.
That saw gold end up 1.6% weekly for the most-active futures contract, as worries about North Korea and the twin impacts of the two Hurricanes adding to demand.
Gold for December delivery rose 90 cents, or less than 0.1%, to settle at $US1,351.20 an ounce, pulling back from an intraday high above $US1,362.
The settlement was the highest since September 6, 2016, for a most-active contract, according to US financial data group, FactSet.
Other metals on Comex ended mostly lower, with December silver ending at $US18.123 an ounce, up less than a cent for the session— but a weekly rise of 1.7%.
The lustre dulled on the recent copper surge with the the three month price dropping more than 3% on Friday as metals sold off following a rapid rally this month.
The price for copper dropped to a low of $US a tonne on the London Metal Exchange after touching a three-year high of $US6,970 on Tuesday.
Copper had jumped more than 20% this year until Friday’s slide, surprising investors and analysts, since, unlike aluminium or zinc, there has been no attempt to cut supply of the metal by Chinese authorities or other producers or regulators (like OPEC has tried in oil) this year.
If anything copper production is set to rise in the next year
Instead, the move has mostly been driven by investor buying, especially from hedge funds in Europe, the US and China.
Comex December copper futures in New York slumped 10.2 cents, or 3.2%, to $US3.042 a pound, down 2.5% for the week.
In other metal moves, nickel prices fell by 6% on the LME, while zinc was down 3%.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.