Commodities: Oil, base metals recover in European trading but iron ore continues to slide

Oil and base metals markets were calmer on Thursday with selected commodities futures contracts partially reversing heavy declines seen for much of the trading week.

Oil benchmarks returned to positive territory in Asian trading, and remained in the green over the European session. At 1612 BST, the Brent front month futures contract was trading up 3.16% or $1.80 to $58.85 a barrel, while the WTI was up 2.46% or $1.27 at $52.92, as the Iranian nuclear talks continued.

While most analysts expect a positive outcome, triggering the arrival of additional Iranian oil to the global supply pool, the ongoing deadlock – resulting in an extension of the talks deadline well beyond 30 June – and a stable end to Chinese trading, lent support to the upside over the session. Meanwhile, oil producers continue to discount their export prices, with Kuwait being the latest exporter to do so.

Most London Metals Exchange futures contracts were in positive territory, well past the midway point of the session. Three-month delivery contracts of primary aluminium (up 1.9%), lead (up 1.2%), nickel (up 3.5%), tin (up 1.9%) and zinc (up 1.3%) were all in the green.

The copper contract posted a much healthier uptick, relative to other base metals, jumping 3.9% or $207 to $5589.50 per tonne as the Chinese equities market stemmed its decline, albeit with the intervention of the government.

However, the price of iron ore fell further in Australia, shedding nearly 11% in one session to $44.10 per tonne; a price level not seen since May 2009 when the country first introduced open spot markets.

Analysts at Societe Generale said the miners ought to brace themselves for more volatility, as market evidence mounted of majors such as Rio Tinto and BHP Billiton gearing up to manage a $40-45 per tonne iron ore price over the short term.

Meanwhile, analysts at Macquarie opined that the recent meltdown in the base metals market was not fully driven by fundamentals although demand conditions had "certainly not been good in recent months."

“This suggests value could be emerging for some metals. For such value to be realised, we probably have to see signs of the equities market stabilising and the economy remaining steady," they added.

Despite worries over Greece, and Deutsche Bank analysts opining that a Chinese slowdown was fast becoming a bigger worry, precious metals failed to grab the attention of safe haven seekers looking to park their cash.

COMEX gold for August delivery was down 0.05% or 20 cents at $1,163.30 an ounce with the yellow metal remaining in the red or broadly flat for much of the session.

Spot platinum continued to endure a torrid week on oversupply issues, trading down 0.87% or $8.94 at $1,022.96 an ounce. However, COMEX silver provided a bright spot, rising 23 cents or 1.53% at $15.40 an ounce.

Finally, agricultural commodities returned into green territory with CBOT corn (up 0.71%), wheat (up 0.09%), ICE cocoa (up 1.26%), cotton (up 0.60%) and CME live cattle (up 0.29%) trading higher.

However, Thursday's trading levels failed to mask a wider downturn with the Food and Agricultural Organization (FAO) of the United Nations noting some of the lowest pricing levels on record for nearly six years over the month of June.

FAO’s Food Price Index (FPI) of agricultural commodities indicated that prices fell by 0.9% last month with the index at 165.1 points. That equated to a decline of 21% on an annualised basis and the lowest FPI level since September 2009.