Currency crisis threatens tropical commodities' prices
Currency crisis threatens tropical commodities' prices
LONDON (AFP): The currency turmoil sweeping through Southeast Asia grabbed the attention of dealers on the global markets for tropical commodities such as rubber, cocoa and sugar cane.
This region of the world accounts for two-thirds of the world's total rubber output. Indonesia and Malaysia are among the leading producers of cocoa beans and Thailand exports more sugar than Cuba.
The devaluations of the Thai baht and the Philippine peso and the sharp falls of the Indonesian rupiah and the Malaysian ringgit led many dealers on the trading floors to scratch their heads in perplexity.
What will be the effect of the spectacular plunge of these currencies? There is no clear answer yet. Some, recalling the Mexican crisis, believe the countries affected will massively step up their exports of raw materials.
The devaluation of the Mexican peso in 1994 had a devastating effect on economic growth and domestic consumption, and led the country to multiply its exports, especially of sugar and coffee.
Will the effect be the same in Southeast Asia? For the moment, the rubber market, which moves in rhythm with the latest twists and turns in Singapore and Kuala Lumpur, has avoided any panic.
In fact, tyre manufacturers seem to have decided to take advantage of the devaluation of the local currencies to stock up on rubber supplies at a bargain price, giving a boost to a depressed market.
If, as some fear, the Asian storm spreads as far as Brazil, the consequences will definitely be harsher for the sugar and coffee markets, since the country is by far the top exporter of these two commodities.
Already this week, the Sao Paulo stock market succumbed to a bout of weakness, blamed by some on the departure of investors alarmed that the Asian turbulence could spill over onto the emerging Latin American markets.
Gold: glittering. The price of the yellow metal recovered some glitter after the previous week's selling frenzy that followed the announcement of the sale of two-thirds of the Australian central bank's gold reserves.
Gold prices on the London Bullion Market climbed eight dollars to 323 dollars per ounce, lifted by speculative buying on the New York market and strong purchases by Asian investors attracted by the current low prices.
The speculative U.S. investment funds which have played a prominent part in the precious metal's decline in recent weeks could switch direction and start to buy again, which would push prices much higher, GNI trading house said.
Silver: scratched. Silver prices fell 10 cents to US$4.25 per ounce, weighed down by speculative selling which offset the effect of gold's rebound.
Copper: steady. Three-month copper prices settled at about $2,280 per ton on the London Metal Exchange, after last week's plunge.
The market steadied despite a massive buildup in LME reserves, which soared by 42,000 tons during the week to a total of 181,150 tons. Changes in the LME stock levels are taken as a sign of demand on the market.
Some dealers have said that the latest buildup in market reserves might have been caused by speculators switching reserves between warehouses in the United States to the LME to take advantage of a price differential between the two markets. Traders here said that physical supplies of copper were hard to come by on the LME.
Aluminum: hard. Aluminum prices hovered around $1,580 per ton this week, but some dealers predicted that a continued fall in market reserves and an upturn in demand unleashed by economic growth in, for instance, the United States would lead prices higher in the future.
Nickel: dull. Nickel prices remained largely unchanged at about 6,850 dollars per ton, in the absence of any market-moving news.
Tin: tumble. The price of tin, which is widely used in soldering and the manufacture of cans, fell by $100 to $5,430 per ton.
Oil: warming. Oil prices rose by 60 cents to $18.60 per barrel on the wings of speculative purchases, as dealers responded to uncertainties surrounding the resumption of Iraqi oil exports.
In June, Baghdad suspended shipments under the "oil-for-food" deal brokered with the United Nations, in protest at delays of several months that have beset shipments of medicine and food aid to the Iraqi people.
However, the Center for Global Energy Studies (CGES) predicted that Iraqi exports might resume as early as July 24.
CGES analysts forecast that the latest rise in crude prices would be short-lived, given the imminent return of Iraqi supplies and the sale of strategic oil stocks by Germany. The latter has said that it will start to sell 450,000-cubic-metre batches of oil on the open market from August.
This will have a "negative" impact on prices, along with other factors, that will depress the crude oil market until mid-1998, the CGES predicted.
Increased supplies would cause prices to slip to an average $16.3 per barrel in the second quarter of 1998, the research group said. The market could fall further if non-OPEC countries increase supply, analysts predicted.
Rubber: bounceback. An upturn in demand from tyre manufacturers caused rubber prices to bounce back by 20 pounds to 610 pounds per ton this week.
Factories have taken advantage of the current low prices to rebuild stock levels, according to the Lewis and Peat trading house.
Prices have fallen below minimum threshold levels at which point the International Natural Rubber Organization is authorized to buy up stocks in a bid to inflate market prices.
However, Lewis and Peat said that the organization has so far stayed away from the market. Devaluation of the Thai baht, the Malaysian ringgit and the Indonesian rupiah has had little impact on the rubber market thus far.
But Western importers have been able to purchase rubber at knock-down prices, which has served to bolster demand.
Cocoa: crushed. The price of the tropical bean fell this week, as the pound's sharp rise against European currencies made London cocoa prices expensive for Continental buyers, and encouraged producers to sell.
The price of cocoa dropped 45 pounds to 1,025 per ton.
Some market players were worried at the dry weather conditions in west Africa over the past few days, which could threaten the region's crops. But GNI trading house underlined that humidity levels in Ivory Coast, by far the world's biggest cocoa producer, remain high after June's heavy rainfall.
Coffee: bitter. Coffee prices in London dived 10 percent during a single day on a wave of speculative selling. Over the week, prices fell $165 to $1,585 per ton.
Prices were dragged down by a mixture of factors, including burgeoning arabica stocks in New York, and the abundant supplies of robusta -- a low-grade bean from Asia and Africa which is traded in London.
According to GNI, the end of the winter season in Brazil, which has lifted the threat of crop-ravaging frosts, also weighed on prices.
The London-based trading house said that the financial turmoil in Southeast Asia had convinced some traders to sell before Indonesia was swept away in the currency chaos afflicting the region.
After the devaluation of the Thai and Philippine currencies, the Indonesian rupiah has also succumbed to a bout of speculative selling, which might prompt a flood of coffee exports by the country, the world's top robusta producer.
However, for the moment, a British trader commented, the country is more preoccupied by adverse weather conditions which have severely affected the size of the robusta crop, slicing it by as much as 30 percent.
But the Ivory Coast -- another leading robusta producer -- is expected to produce a bumper 1997-98 crop, which would compensate for the shortfall from Indonesia.
Sugar: hot. Sugar prices rose on the wings of rumored buying from Russia and severe flood damage suffered by Polish sugarbeet fields.
White sugar prices rose by seven dollars to $322 per ton, before dropping back to $317 per ton on the London market.
The GNI trading house predicted that devaluation of the Thai and Philippine currencies might unleash a rise in exports from the south east Asian countries.
Dealers paid close attention to monetary wobbles in Brazil.
The Sao Paolo stock exchange slumped ahead of a feared devaluation of the Brazilian currency, the real.