COMMODITIES REVIEW

COMMODITIES REVIEW



( Dec 24th )




Most commodities were little changed ahead of Christmas, but copper broke out to multimonth highs.



Price action was choppy and volume was thin in today's shortened session as traders squared their positions ahead of the holiday. Markets will be shut on Wednesday in observance of Christmas, but will reopen with normal hours on Thursday and Friday.



In today's news, the Census Bureau reported that durable goods orders in the U.S. jumped by 3.5 percent in November, better than the 2 percent increase that was expected. Excluding the transportation sector, orders climbed 1.2 percent, better than the 0.7 percent that was anticipated.



Meanwhile, the Commerce Department said that new home sales slipped by 2.1 percent to 464K units annualized in November.



Taking a look at currency markets, the U.S. Dollar Index was last trading up by 0.06 percent to 80.5. In bond markets, the U.S. 10-year yield rose by 5 basis points to 2.98 percent--the highest level since September.



A trading error likely caused copper to spike higher on Tuesday, while most other commodities saw slight gains or price changes as players minimized risk ahead of the Christmas holiday, traders said.



Oil , natural gas, gold and cotton were among commodities that inched higher. Sugar , corn and aluminum were nearly flat.



The Thomson Reuters/Core Commodity CRB index was up 0.3 percent after a positive close for 13 of the 19 commodities it tracked.



** GOLD: Gold continued to hang around the $1,200 mark. The yellow metal was last trading up by $4.69, or 0.39 percent, to $1,203.52, while silver added $0.04, or 0.22 percent, to $19.50.



U.S. gold futures ended up and the spot price of bullion steadied on Tuesday as bargain hunters were lured by prices that lingered near six-month lows around $1,200 an ounce in the final session before Christmas.



Volume remained thin as most gold investors tried to even out holdings ahead of yearend.



Meanwhile, thin trading conditions may have aided gains in the metals market.



"Generally, in this holiday scenario, the market tends to firm, as short sellers are less aggressive than their bullish counterparties when it comes to holding a position into an extended market holiday," said Peter Hug, global trading director at Kitco Metals.



"People are trying to avoid paying higher taxes than necessary for positions that will be marked-to-market at the end of Dec. 31, so there's quite a bit of portfolio evening out that's going on, so to speak," said George Gero, a gold market analyst and vice president at RBC Capital Markets Global Futures in New York.



"There's also been some short-covering and bargain hunting that has emerged since we got to below $1,200 in the last couple of days."



U.S. gold futures' benchmark February contract settled up 0.5 percent at $1,203.30.



The spot price of bullion was at $1,198.23 an ounce by 1:41 p.m. EST (1841 GMT), little changed from late Monday's level.



On Friday, gold tumbled to six-month lows of around $1,185 after the U.S. Federal Reserve said it would start scaling back its long-running monetary stimulus program, which had fed a long gold-buying spree. Gold hit record highs above $1,900 in 2011, as years of increased central bank liquidity and record-low interest rates made gold more appealing to investors.



As the end of the year approaches, gold down is 28 percent for 2013, ending a 12-year rally.



"It is clear in our view that gold can expect little in the way of support from Western investment markets," HSBC said in a note.



"Investors continue to lighten long positions, exit the gold exchange-traded funds or go outright short."



Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 8.40 tonnes to 805.72 tonnes on Monday, the lowest in nearly five years.



Strengthening U.S. economic data have been weakening gold's status as a safe haven. U.S. consumer spending rose in November at the fastest pace since June, data showed on Monday, while consumer sentiment hit a five-month high.



"The broad consensus is that 2014 is going to be a better year for the global economy," Macquarie analyst Matthew Turner said.



"There's less risk of shocks because the euro zone crisis seems to have stabilized, some of the emerging market concerns seem to have faded, the U.S. is reducing QE and inflation is going to remain low," he added. "Without a major shock, investor demand (for gold) seems unlikely to pick up."



Among other precious metals, silver was flat at $19.41 an ounce. Spot platinum was up 0.6 percent at $1,331.24 an ounce, having fallen to its lowest since early July at $1,309.75 on Thursday. Spot palladium was down 0.4 percent at $690 an ounce.



@@ "Investment demand continues to shy away from the metal," Dominic Schnider, head of commodities research at UBS AG's wealth-management unit, said. Investors aren't looking "for insurance assets at the moment. They're really looking at the growth outlook which is quite promising."



** CRUDE OIL: Crude oil was up slightly. Brent was last trading higher by $0.42, or 0.38 percent, to $111.98, while WTI gained $0.30, or 0.3 percent, to $99.21.



Brent oil settled at a near a one-month high on Tuesday in thin pre-holiday trade as traders covered short positions amid civil unrest in Africa that curbed global supply while demand for gasoline rose.



Conflict in South Sudan threatened the country's oil output, adding to supply concerns as Libya's production is off by more than 1 million barrels per day (bpd).



U.S. gasoline futures drove the oil complex higher, trading up 1.2 percent, after reaching a 15-week high in the previous session. Refinery snags in the United States and striking refinery workers in France thinned supply while demand remains robust.



"You are running refinery operations at pretty high levels for this time of year," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis. "This shows how increasingly sensitive the market has become to anything less than optimal."



Amid the uncertainty, traders bought back contracts to cover short positions ahead of the Christmas holiday on Wednesday, which drove U.S. and European prices up in light holiday trade.



"There's a rule of thumb; you really don't want to go home short with what's going on," said Rich Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.



The situation in South Sudan "is going to put a potential crunch on supply in the short term," he said.



New York Mercantile Exchange trading is closed on Wednesday for the Christmas holiday.



Brent oil settled up 34 cents to $111.90 a barrel after matching the Dec. 6 high of $112.06. This was the highest settlement price since Dec. 3.



U.S. oil futures settled up 31 cents at $99.22 a barrel, above the 200-day moving average of $98.89.



The spread between the two oil benchmarks ended at $12.68 per barrel, three cents wider than the previous session's settlement.



U.S. gasoline futures reached a fresh 15-week high of $2.8269 per gallon breaching the 200-day moving average of $2.8177 for the first time in nearly four months. The contract settled at $2.8142.



The crack, or difference, between U.S. crude oil futures and gasoline widened by more than $1 from the previous session to $18.94 per barrel.



South Sudan's production has fallen by 45,000 barrels per day (bpd) to 200,000 bpd after oilfields in Unity state shut down due to fighting.



The United Nations could nearly double the size of its peacekeeping force in South Sudan as a deepening conflict has killed hundreds of people.



Traders will be scouring U.S. oil inventory data to gauge supply. U.S. crude oil stockpiles likely fell for the fourth straight week last week, while gasoline inventories rose, a Reuters poll of analysts showed.



The API will release its data at 4:30 p.m. EST (2130 GMT) on Tuesday while the U.S. Energy Information Administration will publish its data on Dec. 27 at 11:00 a.m. EST due to the closure of the federal government on Wednesday for Christmas.



DATA RELEASED BY API:



03:00 USD API Weekly Crude Stock 0.50M -2.50M



03:00 USD API Weekly Distillates Stocks -0.700M 0.434M



03:00 USD API Weekly Gasoline Stock -2.500M 0.481M



@@ "There [was] thin holiday trading today and Brent prices [were] being sustained by political concerns surrounding South Sudan," Andrey Kryuchenkov, an analyst VTB Capital, said.



"Crude is seeing some resistance around the 200-day moving average, and that's giving traders a reason not to move too far away from this level," Ric Spooner, a chief analyst at CMC Markets, added. "After recent gains, we are at a level where traders might be comfortable to just wait and see if the news can catch up to the prices. People in the market would want to square these long positions."



** NATURAL GAS: Natural gas was last trading down by $0.06, or 1.23 percent, to $4.41/mmbtu on profit-taking. However, weather forecasts remain bullish, with colder-than-normal temperatures expected over the Midwest and Northeast during the first week of January.



Natural gas fell in New York on speculation that a break from unusually cold U.S. weather may limit heating fuel demand amid lower trading volume.



Gas dropped 1.1 percent as Commodity Weather Group LLC predicted seasonal readings along the East Coast over the next five days following last week's cold. Trading volume was 47 percent below the 100-day average at 1:47 p.m. in New York before tomorrow's Christmas holiday.



"The immediate weather is not supportive," said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. "Today will be lightly traded because of the holiday. I wouldn't expect any kind of big moves."



Natural gas for January delivery slid 4.7 cents to settle at $4.416 per million British thermal units on the New York Mercantile Exchange. Prices yesterday rose to $4.463, the highest close since July 20, 2011. Gas is up 32 percent this year, heading for the biggest annual gain since 2005.



Floor and electronic trading ended at 1:30 p.m. New York time. Electronic trading will resume at 6 p.m. tomorrow and floor trading will open at the usual time Dec. 26.



The discount for January futures to February narrowed 0.3 cent to 5.3 cents. March gas traded 27 cents above the April contract, compared with 30.8 cents yesterday.



Options Trading



April $4.25 calls were the most active options in electronic trading. They were 1.7 cents lower at 22.3 cents per million Btu on volume of 1,000 at 1:49 p.m. Calls accounted for 72 percent of trading volume.



Strong cold air from the upper Midwest will sweep into the eastern half of the U.S. from Dec. 29 through Jan. 2, said Commodity Weather in Bethesda, Maryland.



New York's high on Dec. 26 will be 41 degrees Fahrenheit (5 Celsius), 1 above normal, before dropping to 25, 14 lower than average, on Dec. 31, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago will be 8 degrees on Dec. 30, 24 below normal.



About 49 percent of U.S. households use gas for heating, said the Energy Information Administration, the Energy Department's statistical arm. The heating season from November through March is the peak demand period for the fuel in the lower 48 states.



Gas Inventories



Gas inventories probably fell by 177 billion cubic feet last week, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients yesterday. The five-year average for the period is decline of 125 billion. The EIA is schedule to release the report on Dec. 27, a day later than usual because of the mid-week holiday.



Withdrawal of the fuel from storage has exceeded the five-year averages in four of the previous five weeks, EIA data show. U.S. stockpiles slid by 285 billion in the week ended Dec. 13 to 3.248 trillion, a record based on government data going back to 1994.



A supply deficit versus the five-year average will widen to 477 billion by Jan. 10 from 261 billion in the week ended Dec. 13, Evans said.



"This growing deficit represents ongoing upward pressure on prices that we think could make a run for the $5 level in the weeks ahead," he said.



Gas production will expand for the sixth consecutive year in 2013, rising 1.8 percent from last year to average a record 70.74 billion cubic feet a day, the EIA said in its Dec. 10 Short-Term Energy Outlook. Output at the Marcellus shale will surge 41 percent to 13.3 billion cubic feet a day in December from a year earlier, government data show.



The U.S. met 86 percent of its energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, according to government data.



@@ "Wall Street has been throwing a lot of money at this market," said Stephen Schork, president of Schork Group Inc., a consulting group. "It's been aided by some very cold December weather. The forecasts are calling for some cold during the remaining winter."



** COPPER: Copper was last trading higher by $0.06, or 1.78 percent, to $3.41/lb on Comex--an eight-month high.



New York copper futures jumped over 2 percent on Tuesday after an erroneous buy order sent prices to their highest levels since April, triggering buy stops and roiling quiet pre-holiday trade, traders and sources said.



The big buy order placed in the most-active March futures contract shortly before midday in New York sent prices up over 11 cents to $3.4475/lb, its loftiest level since April, in a matter of minutes.



"There was an error trade," a spokesman for the CME exchange said.



The CME Group Inc will adjust any orders above $3.42 per lb placed after 11:49 a.m. EST (1549 GMT) back to that level, it said in a notice to members seen by Reuters.



"Anytime you have a light trade such as a holiday market, this is a possibility. Someone was probably filling in and put in a bad trade or a fat finger trade," Art Liming, futures specialist for Citigroup said.



The timing coming just an hour before the market closed for the Christmas holiday may have increased the impact on prices. Trading on COMEX will resume on Thursday.



Almost a third of March contract's turnover for the day went across traders' screens in a 15-minute period from 11:50 a.m. EST, according to Reuters data.



Before the order, prices were a touch higher underpinned by tightness in near-term supplies and increasing confidence about the U.S. economic recovery.



The market sustained the gains by the close, which was earlier than usual for the holidays, after prices hit pre-determined buy-stops above the market.



COMEX March copper prices settled at $3.374, up 2 percent, with over 3,100 lots traded on the day.



Orders for long-lasting U.S. manufactured goods surged in November and a gauge of planned business spending on capital goods recorded its largest increase in nearly a year.



Trading across commodity and financial markets was stable ahead of the Christmas holiday.



@@ "Prices of copper and some other metals were encouraged as market liquidity was seen improving after the central bank operation [in China]," said Fang Junfeng, an analyst at Shanghai CIFCO Futures Co.



** GRAINS: The grain complex was mixed. Corn was last trading up fractionally to $4.35/bushel, while soybeans shed $0.02, or 0.33 percent, to $13.35 and wheat fell by $0.02, or 0.33 percent, to $6.08.



U.S. soybean futures inched upward on Tuesday in quiet pre-Christmas dealings with a sale of U.S. soy lending some modest support while weather in South America remained a mixed bag for the soy complex.



Corn was flat to firm with the big buildup in global corn stocks hampering attempts to rally prices while wheat fell to a fresh 19-month low on tepid exports and plentiful wheat supplies.



At 9:58 a.m. CST (1558 GMT), Chicago Board of Trade January soybeans were up 3-1/4 cents per bushel at $13.31-3/4 per bushel, March corn was up 1/4 cent at $4.34-1/2 and March wheat was down 1-1/2 at $6.08.



Trade volume was light ahead of the Wednesday Christmas holiday. Markets will close early at 12:00 p.m. CST (1800 GMT) on Tuesday and remain closed on Wednesday.



Much of Tuesday's focus was on the soybean complex and the modest strength in the spot January soybean and soymeal futures contracts.



"If you want to blame it on something, the exports would be okay. We got down near the bottom of the range and now it's going back up," said Art Liming, a futures specialist for Citigroup.



The U.S. Department of Agriculture on Tuesday said private exporters sold 185,000 tonnes of U.S. soybeans to an unknown destination and sold 114,000 tonnes to Egypt. Also on Monday, USDA announced a sale of U.S. soybeans to an unknown buyer.



Spot January soybeans have been in a narrow trading range since late November with a low of near $13.10 and a high of just above $13.50.



"With the tight U.S. stocks, I don't see January going below $13 but with the big South American crop coming on, a move above $13.50 isn't likely either," Liming said.



"Weather in South America is not a big problem, Brazil is OK while there is some concern in Argentina," he said.



Soybean and corn futures had found some price support since the end of last week from hot and dry weather in Argentina and pockets of dryness in Brazil, which raised doubts about expectations of bumper harvests.



"The weather situation is a concern for corn above all because it goes through pollination earlier," a European trader said of South American conditions. "But U.S. corn will struggle to rally unless this weather risk is confirmed."



Crop-friendly showers were expected this week into early next week in most of Argentina's corn and soybean growing region, which will help ease dry weather stress on crops, said Drew Lerner, a meteorologist for World Weather Inc.



"All areas of Argentina should see some rain with amounts ranging from 0.50 inch to 1.50 inches (1.3-3.8 cm)," he said.



The key crop regions will receive the showers Friday through Tuesday and the rainfall will be followed by a return to hot weather next week, Lerner said. "The second half of next week will be dry and warmer again so the showers this week will bring only temporary relief," he said.



Overall satisfactory crop weather continues in Brazil with some dry areas in southern Brazil expected to receive showers soon, Lerner said.



Wheat fell to a 19-month low in Chicago as forecasts for record global production discourage importers from stockpiling grain. Soybeans and corn rose on increased demand for U.S. crops.



Wheat prices slumped 22 percent in Chicago this year, set for the biggest annual drop since 2008, as the U.S. Department of Agriculture projected a world harvest at an all-time high of 711.4 million metric tons. Reserve inventories before the 2014 harvest will rise 4 percent to 182.8 million tons, the USDA said.



"There is too much global supply," Mark Schultz, the chief analyst for Northstar Commodity Investment Co. in Minneapolis, said in a telephone interview. "The story for 2014 will be one of lower prices to improve the incentive for importing nations to stockpile wheat."



Wheat futures for delivery in March dropped 0.5 percent to close at $6.0625 a bushel at noon on the Chicago Board of Trade, after touching $6.0575, the lowest for a most-active contract since May 16, 2012.



The exchange will be closed tomorrow for the Christmas holiday. The market will reopen at 8:30 a.m. on Dec. 26.



Soybeans rose on increased overseas demand for U.S. supplies, while corn gained on speculation that rains may not improve depleted soil moisture in parts of Brazil and Argentina, the biggest exporters after the U.S., Schultz said.



Soybean futures for March delivery rose 0.2 percent to $13.2275 a bushel in Chicago. The price fell 6.2 percent this year on USDA forecasts for record crops in South America, where harvesting begins next month.



Corn futures for delivery in March added 0.1 percent to $4.345 a bushel. The grain fell 38 percent this year as the USDA estimated domestic farmers boosted output this year by 30 percent to a record.
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