Commodities: Metals struggle, oil recovers but cocoa futures continue to slide

Overnight strengthening of the dollar against a basket of currencies did not have much of an impact on precious metals trading as the Greek crisis continues to impact sentiment. After initially gaining in Asia on lacklustre US consumer spending data, gold was broadly flat, with the July contract coming in 0.05% or 60 cents higher at $1,189.30 an ounce at 08:54 BST.

Spot gold level was at $1,188.15 down a dollar or 0.09%. Concurrently, spot platinum was up 0.26% or $2.90 at $1,106.48 an ounce. COMEX silver for July delivery was also broadly flat at $16.74 an ounce up a mere six cents or 0.33% with sentiment in favour of an imminent US interest rate cut receding.

David Madden, market analyst at IG, said, “Eric Rosengren of the US Federal Reserve stated the conditions were not right for an interest rate rise. He might be a non-voting member of the Fed, but he said what a lot of traders are thinking. It would be difficult to imagine an interest rate hike when the US economy contracted in the first quarter.”

Meanwhile, oil markets stayed in the green, with WTI returning back above the $60 level as OPEC prepares to meet in Vienna later this week. The cartel is largely expected to keep its members’ production quota at 30m barrels per day (bpd). Its latest dataset published in April indicated that OPEC was in fact producing 930,000 bpd above its stated production cap.

Brent front-month futures contract was trading 0.60% or 39 cents higher at $65.27 a barrel, while the WTI bounced up to $60.68 up 50 cents or 0.82%.

In the base metals market, copper recovered marginally overnight on the London Metal Exchange to $6,024 a tonne, up from $6,015 on Friday. However, analysts reckon market uncertainty will continue to persist.

“Copper has little to be cheery about after the HSBC/Markit manufacturing PMI for China showed that the sector remained in contraction in May. The trading range for the red metal was tight as the survey wasn’t weak enough to warrant additional stimulus from Beijing, and neither was it encouraging enough to trigger a pick up in demand for copper,” Madden, of IG, added.

A stronger dollar making a plethora of base metals dearer for non-US buyers meant three-month contracts of lead (down 0.9%), zinc (down 1.5%) and nickel (down 0.7%) were all in the red. Decline in tin prices (down 0.6%) continued despite stockpiles being at their lowest since 2008, as uncertainty in China weighed on traders’ thinking.

On the agricultural commodities front, CBOT corn (up 0.35%), wheat (up 0.76%), CME live cattle (up 0.58%) and ICE cotton (up 0.24%) futures were all trading higher. However, with an uptick in South American cocoa production in South America, the ICE cocoa futures contract for July delivery remained under pressure coming in 1.24% or $32 lower at $3053 a tonne.

Much of the decline is largely down to a bumper harvest in Brazil following on from last year’s drought. Production surpluses in Columbia and Guatemala are also adding to supply-driven bearish trends with cocoa futures lurking around 12-month lows and currently trading at less than half the value noted at the midway point of 2011.