Asian commodity traders grit teeth

Asian commodity traders grit teeth

SYDNEY (Reuters): Asian commodity dealers are preparing for a slowing in trade as a new round of economic turmoil squeezes Japan demand, sidelines Indonesian players and makes it even harder to assess future market trends.

Only Australian exporters are cheering as the Australian dollar is stalled below 50 U.S. cents, boosting local currency earnings from exports. But even they see darkening clouds.

Volatile currencies, tumbling share values and a bout of concern over systemic risk in Japan -- plus the threat of a major U.S. economic slide -- have cast a blanket of gloom over Asia's commodities trade.

Leading commodities importer Japan, top exporter Australia, and emerging market countries Indonesia and Thailand, are all affected.

In industrial Japan, any export gains offered by 20-month lows for the yen against the U.S. dollar are overpowered by flagging American demand.

"As 20-30 percent of Asian exports are directed to the U.S., the slowdown in the U.S. economy has a major negative impact on industrial production in Asia, depressing demand for commodities," said Akio Shibata, associate senior officer, industrial research section, at trade house Marubeni Corp.

Demand for oil, base metals and rubber in Japan and elsewhere in Asia are all being hurt by the U.S. slowdown, he said.

In developing Indonesia, gyrations of the local currency the rupiah have driven soymeal, wheat and sugar buyers from the market.

"Some deals under negotiation have not materialized because the rupiah is really scary. Traders and feedmillers are staying away from the market...They won't make any purchases right now," a grain trader at an international house said.

For big sugar, rubber and rice exporter Thailand, a weakening but volatile currency - the baht - added to the difficulties of selling into markets suffering from scant demand and low prices.

"Nobody can speculate about what prices we would sell for shipments a few months ahead - it is just a gamble," one rice trader said.

A weakening baht was likely to drive rubber exporters to boost sales, Choosit Opaswongse, president of the Thai Rubber Exporters' Association said.

But even those who see benefits from falling currencies fear the good times may not last.

"Rather than a risk, it (the Australian dollar collapse) is probably a benefit," said Lloyd George, public affairs manager in Australia for U.S. grains giant Cargill Inc.

"(But) at some stage or another that logic starts to fail, I'm not sure whether its at 45 cents or 35 cents, but a drop in currency at this rate isn't good." George was speaking as the Australian dollar remained below 50 U.S. cents after sinking to a new low of 49.23 U.S. cents.

Commodity traders in Asia and Australia see medium-term risks for all commodity prices from the current turmoil.

Currency gyrations and share market slides could be managed by the trade, but the factor causing most worry was falling U.S. demand and its effect on Japanese, Korean and Taiwan output and commodities buying, an Australian metals trader with a major Japanese house said.

There is no sign of a flight to commodities as a safe haven in either Asia or Australia, nor do deal-makers see trade grinding to a halt because of financing pressure from banks.

But deals were taking longer to put together with some major Asian markets very cautious, the trader said.

Metals were insulated from currency volatility by the normal practice of trading in U.S. dollars. But this would not save them from falling demand in Japan, Korea and Taiwan, nor from uncertainty in the U.S., the trader said.

"Producers from Australia are still quite bullish. But with the Australian dollar so low, nerves are on edge with some mining houses here a very cheap buy."

Cargill's George takes the pragmatic view that life goes on and demand is the key. "It's still going to be the normal supply/demand issues that will drive commodity prices. And they're the same issues we've been dealing with over the last 12- 18 months," he said.