Selling trend picks up in commodity markets

Precious metals, energy, agricultural commodity prices down

The pace of decline in commodity markets gained speed last week due to a sharp tightening in monetary policies and recession concerns.

After the US Federal Reserve raised rates by 75 basis points on Wednesday for the first time in 28 years and gave verbal guidance that its hawkish policies would continue, recession expectations gained strength in the markets.

While recession concerns boost selling pressures in global stock markets, volatility remains in bonds.

Analysts said precious metals took a hit due to concerns triggered by the aggressive monetary policies on global growth.

Last week, gold fell 1.7%, platinum 4.3%,palladium 6.2%, and silver 1%.
Palladium also declined amid projections that demand would slip alongside electric vehicle production.

The metals outlook is expected to remain under pressure in the short term.

China is also in a fragile period as it faces risks of new coronavirus restrictions and economic recession which could lead to reduced metals demand.

In the over-the-counter market, copper finished the week with a loss of 5.1%, aluminum 6.3%, lead 3.2%, nickel 6.7%, and zinc 4.9%.

The possibility of lower growth or industrial production triggered by geopolitical risks, higher inflation, or lingering effects of the pandemic has negatively affected demand for copper.

Losses in natural gas exceed 20%

Energy commodities also followed a sales-oriented path, with Brent oil falling 7.5%, along with natural gas by 20.8% on the New York Mercantile Exchange.

The decrease in Brent oil prices was driven by rising demand concerns in global oil markets.
China’s re-introduction of pandemic measures amid an increase in COVID-19 cases strengthened the possibility that the outbreak in the country may not have been fully controlled.

Difficulty in curbing infections and the return of restrictions caused concern that economic activities would be adversely affected and demand would decline in the world’s second-largest oil consumer.

Experts have said China’s coronavirus restrictions and global inflationary concerns would lead to a fall in oil demand in the coming months.

In natural gas, sales on the New York Mercantile Exchange accelerated after a fire at the Freeport LNG terminal in Texas.

Downward trend in agricultural commodities

There was a downward trend in agricultural commodities as well, last week.

Corn traded on the Chicago Mercantile Exchange increased by 1.7%, while wheat fell by 3.7%, rice by 0.2%, and soybeans by 2%.

Cotton traded on the New York Mercantile Exchange slipped 3.5%.

Coffee lost 1.01% and sugar 1.9%, while cocoa gained 0.1%.

Corn prices rose amid concerns that production would suffer due to drought.

Wheat harvest

Zafer Ergezen, a futures and commodity markets expert, said concerns about a slowdown in economic growth heightened with the Fed’s rate hike.

“Interest rate hikes push the dollar index up, this causes selling pressure in all commodity markets,” he said.

Ergezen, who said wheat closed the week in decline, noted that the wheat harvest in the US and Europe was progressing faster than expected.

He also said news of a corridor for wheat exports out of Ukraine had also had an effect on prices.
Turning to the fall in rice, Ergezen said the rise in output and decrease in lockdowns in East Asia had increased sales pressure.

Ergezen said cotton also depreciated during the week, adding that concerns of a slowdown in economic growth were climbing with the Fed’s recent interest rate hike.

“This led to an increase in sales in the cotton market, which is sensitive to economic data,” he explained.

With coffee also finishing the week with a decline, Ergezen said a “good yield is expected” despite a decrease in Vietnam, the world’s largest producer of robusta-type coffee.

He added that sales pressure is also increasing amid the strengthening of the dollar.


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