Commodities: Base metals recover in Europe, but oil benchmarks slip lower

Base metals recovered ground despite weak market fundamentals, while oil benchmarks stayed low in European trading on Monday, following news of a possible resolution to the Greece debt crisis and China’s aggressive intervention to arrest its equities sell-off.

Past the midway point of the session, three-month futures contracts of primary aluminium (up 0.8%), copper (up 0.08%), lead (up 2.2%), nickel (up 2.3%), tin (up 1.5%) and zinc (up 1.7%) traded higher on the London Metals Exchange, following a near rout the previous week.

Tin, in particular, saw its LME spreads switch back into backwardation, following on from the base metal slipping to a fresh six-year low of $13,365 per tonne last month. City analysts attributed this to a new supplier emerging in the shape of Burma. However, many reckon the current price of $14,202.50 was largely down to the market reassessing and responding to additional tin supply, which still remains high.

Concurrently, improvement in copper prices did not inspire confidence either with analysts at Barclays predicting surpluses to replace shortages this year, and rather soon as it were in wake of perceived risks to the global economic climate owing to the Chinese correction and turmoil in Europe.

Meanwhile, the performance of precious metals continued to remain lacklustre. At 1500 BST, the COMEX gold for August delivery was down 0.56% or $6.50 at $1,151.40 an ounce, while spot gold was down $11.35 or 1% at $1,152.39 an ounce.

The metal's safe haven tag had taken a beating, said Macquarie analysts, but perhaps in parts down to the fact that many investors do not feel the need for a safe haven.

“In other words, despite appearances, [for some] there isn’t much sense of crisis around the world, with the main two cited problems, Chinese equity prices and the Greek crisis, looking worse than they are.”

“In China stock prices are down nearly 30% in less than a month, but they remain 15% higher than at the start of the year. Furthermore global equity markets haven’t shown anywhere near as much volatility and are broadly unchanged over the year,” they added.

Similarly, it could be argued that while Greece is a disaster, it accounts for only 2% of Eurozone GDP, and just 0.3% of global GDP. “The European authorities have spent the last few years preparing to minimise any country existing the bloc, and so wider markets are much less fearful now than they were when the crisis first broke. In any case there might still be a deal done,” Macquarie analysts concluded.

Elsewhere, spot platinum was trading down $3.47 or 0.34% at $1,028.41 an ounce, while COMEX silver for September delivery was also trading lower by 0.78% or 12 cents at $15.36 an ounce.

Away from precious metals, general oversupply permutations continued to send oil benchmarks lower with International Energy Agency saying the price could fall further, as data indicated that Saudi Arabia had increased its production to 10.56m barrels per day (bpd) in June.

The said production rate broke the exporter’s all time record set in 1980, according to records kept by OPEC. Meanwhile, the cartel’s 12 members raised their collective oil production by 283,200 bpd to a three-year high of 31.378m bpd based on hopes of higher demand from emerging markets in 2016.

At 1526 BST, the Brent front month futures contract was down 1.26% or 74 cents at $57.99 per barrel, while WTI as lower by 0.78% or 41 cents at $52.33.

Finally, the agricultural commodities scenario was rather mixed. CBOT corn (up 0.23%) and ICE cocoa (up 0.15%) were trading marginally higher, while CBOT wheat (down 0.65%), ICE cotton (down 0.15%) and CME live cattle (down 0.67%) were in the red.