Commodities: Base metals back in the red, oil continues to slide

Respite in the base metals market proved short-lived, while oil benchmarks continued to trade lower in European trading on Friday.

With the wider US market closed for the Fourth of July holiday weekend, traders looking for direction from Asia continued short calls on a whole plethora of base metals reversing the marginal uptick recorded on Thursday. Past the midway point in trading on the London Metal Exchange, the three-month contracts of primary aluminium (down 0.5%), copper (down 0.1%), lead (down 1.2%), nickel (down 0.6%), tin (down 2.2%) and zinc (down 0.1%) were all trading in the red on Friday.

Meanwhile, in its bid to improve transparency, the LME put forward fresh proposals to reform its warehouse programme this week. The exchange has proposed load out rates and a cap on queue rents in a bid to reduce the influence of LME warehouse owners. However, analysts at Macquarie believe the end result could be a sustained period of lower premiums, and the end of long warehouse queues.

“This of course is a benefit to the consumer, however we don’t necessarily agree that it will lead to the base metal markets becoming more transparent – as is the LME’s desire,” they added.

“Instead, we see the net result being a continued flow of material away from the LME to off-market locations, increasing opacity and leading to very different risk and inventory management models being required.”

Precious metals market remained lacklustre, albeit in the green at lower levels, with COMEX gold for August delivery up $4.00 or 0.34% at $1,167.50 an ounce at 1415 BST, while COMEX silver was up seven cents or 0.47% at $15.64 an ounce. Additionally, spot gold was marginally up by 0.13% or $1.56 at $1,167.82 an ounce while spot platinum was down 0.19% or $2.100 at $1,082.15 an ounce.

Kelly-Ann Kearsey, dealing manager at GoldMoney, said safe haven buying at a time when Greece was in hot water with the Eurozone had not materialised to the extent some would imagine.

“Instead, the market is looking at gold through green tinted glasses, focusing on the potential rate hike in the USA and a strong dollar. It means that gold is at a four-week lows despite potential euro troubles.”

“In fact, had European traders bought gold in euros eighteen months ago they’d be sitting comfortably as their gold stock will have risen 25% in value against the currency. This lends weight to the yellow metal’s currency fluctuation protection,” Kearsey concluded.

Elsewhere, oil continues to trade lower with no obvious signals of bearish sentiment dissipating on the horizon. The Brent front month futures contract for August delivery was down 0.32% or 20 cents at $61.87 a barrel continuing short calls seen in Asian trading. Concurrently, the WTI was down 0.26% or 15 cents at $56.78.

Finally, in the agricultural commodities market CBOT corn (up 1.42%), wheat (up 0.34%), ICE cocoa (up 0.37%) and CME live cattle (up 0.10%) were all in the green, however ICE cotton was trading lower by 0.22% or 15 cents at $67.39 a pound.