Commodities: aluminum and gold recover, sugar climbs

Posted 20 May, 2022

Prices for industrial metals, particularly aluminum, copper, and zinc, rallied during the week on the London Metal Exchange (LME), supported by a weaker dollar and the easing of sanitary measures in China.

“Prices were supported by the upcoming easing of coronavirus restrictions in Shanghai and the weakness of the US dollar,” said Daniel Briesemann, an analyst at Commerzbank.

A weaker dollar allows investors to use other currencies to have greater purchasing power.

The aluminum market has "significantly tightened", assures the expert. Proof of the increase in demand, LME stocks are "at their lowest level since November 2005", with only 500,000 tonnes of aluminum in storage.

“The recovery in metal prices seems to be based on fragile foundations,” argues Daniel Briesemann, however.

For the analyst, concerns about demand from China, a very large consumer of industrial metals, are still present.

China has had to deal with a resurgence of the pandemic in recent months, which is affecting several parts of the country to varying degrees.

“Although Shanghai is gradually emerging from containment, the capital Beijing could be on the verge of entering it as Covid cases continue to increase there,” he said.

On the London Metal Exchange, a ton of aluminum for delivery in three months traded at 2,951.00 dollars on Friday around 3:40 p.m. GMT (5:40 p.m. in Paris), against 2,788.00 dollars a week ago at the close.

 

Gold rebound

 

The price of gold, which had suffered in recent weeks from the strength of the US dollar, recovered as the week progressed.

The price of one ounce had sunk to $1,786.90 on Monday, its lowest since early February, before rising again.

“In the past month, gold has suffered the double blow of a strong dollar and an FOMC (US Federal Reserve Monetary Policy Committee, the Fed) signaling an aggressive pace of rate hikes to combat inflation," said Ole Hansen, an analyst at Saxo Bank.

Gold trades in dollars on the global market, so the rise in the greenback makes it more expensive for investors using other currencies.

Conversely, investors worry about the US economic outlook, which could lead the Fed to slow its hikes, and cut the momentum of the greenback and US bonds.

In this context, "gold took advantage of the movement of risk aversion on the market this week", explains AFP Han Tan, the analyst at Exinity.

“It will be necessary to see if this movement is maintained in a context of rising rates”, notes however Craig Erlam, an analyst at Oanda.

An ounce of gold traded for 1,843.93 dollars, against 1,811.79 dollars seven days earlier.

 

Suger spike

 

Sugar prices in New York and London rose during the week, buoyed by reduced supply, mainly from Brazil, the United States, and potentially India.

“Two of the largest US beet-producing states (Minnesota and North Dakota) have seen plantings significantly delayed by cold, wet weather,” said Rabobank analysts, stretching the white sugar supply.

Brazilian sugar production has also fallen by 51% compared to the previous year, according to analysts taking data from the latest report by the national industrial association Unica.

Brazil, the world's largest sugar producer, “holds a big chunk of the cards for short-term sugar prices,” with “the possibility that factories will favor ethanol production,” they say.

High oil prices encourage the use of sugar cane in Brazil to produce ethanol, which has become more competitive, which reduces the sugar available, and boosts prices.

In addition, "India could decide to apply restrictions on sugar exports, as it did for wheat", say the analysts. The country announced on Saturday that it would ban wheat exports, except with special government authorization, in the face of a drop in production due in particular to extreme heatwaves.

Sugar consumption, however, remains a concern, according to Rabobank analysts, “, especially in regions where war or health restrictions due to Covid-19 are ongoing”.

In New York, a pound of raw sugar for delivery next July was worth 19.90 cents, against 19.17 cents eight days earlier.

In London, a ton of white sugar for delivery in August was worth 554.60 dollars against 535.70 dollars the previous Thursday at the close.

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