Commodities trading was mixed this week. By far the worst performer in the commodity complex was natural gas futures as the Sept contract slid ~11.7%. Oil dropped ~4.7%, while Nov soybeans were down ~2%. On the positive side, wheat was the best performing commodity with ~3.9% in gains, while aluminum was next with ~1.9% in gains. A large contributor to weakness in the commodities was a stronger US Dollar Index, which remained higher all week.
While Sugar isn't a commodity that is heavily watched, the commodity was in the news this week after setting 28-years highs and being the subject of a WSJ article, which discussed the possibility for a shortage at big food companies. The two publicly traded sugar stocks -- domestic producer IPSU and Brazilian producer CZZ -- traded higher in reaction to the article, gaining 10.7% and 5.9%, respectively yesterday. CZZ is trading flat today, while the majority of commodity-related stocks are sharply lower. CZZ has the most potential to benefit of the two, as it will benefit from higher prices and the potential for any ease in the restrictions on sugar imports into the U.S., whereas an ease in the protection of domestic sugar producers would be viewed as negative for IPSU.
In the energy sector, crude was set to end the week near the unchanged line until selling pressure took the commodity lower on Friday, pushing it well below the $68 mark to ~$67.60/barrel. Crude began the week lower, fell sharply lower on Tuesday and broke through the $70 level. After rebounding Wednesday morning, crude pulled off its session high of $71.13 following inventory data, which showed a larger than expected build for a third consecutive week (2519K vs. consensus of 1000K -- gasoline inventories had a draw of 927K vs. 1200K consensus). Crude weakened today as equity markets declined and the US Dollar Index spiked, keeping oil below the $68 mark.
Natural gas futures fell sharply this week with the Sept contract losing ~11.7% of its value to $3.33 per MMBtu. Nat gas dropped on Tuesday on no specific catalyst (other than weakness in the stock market) and then fell further on Thursday after reversing from an initial spike higher on inventory data. The data showed an inventory build of 63 bcf vs. analyst expectations of a build of 65 bcf. This smaller than expected build initially caused a knee-jerk spike in futures, but they quickly gave up their gains and headed lower. Unfavorable weather conditions contributed to weaker natural gas demand, which added to pricing pressure. Collectively, these catalysts added to further YTD losses, which are currently ~46%.
Looking at precious metals, Dec gold futures are ending the week near unchanged levels at $948.60/oz for a second week in a row, while Sept silver again outperformed gold, showing gains of 0.1% to $14.68/oz. The sharpest move lower in gold occurred pre-market on Monday when gold fell over $10/oz to just under $945/oz as the US Dollar Index began to rise sharply. Gold traded near those lows in a tight range until Thursday when it began erasing some of its losses as the US Dollar Index continued to trend lower. Overall, gold traded in negative territory almost all week with one brief move into positive territory on Thursday, while silver spent most of its time in negative territory before displaying notable strength on Thursday, which continued into Friday.
In industrial metals, copper prices rose this week, posting gains of ~1.1% largely on expectations of an improving economy. Additionally, Goldman boosted its copper forecast early Friday, however, copper is traded lower on Friday on broad market weakness. Copper and aluminum stocks rose sharply again this week, and were some of the best performing commodity stocks, on gains in the underlying commodities... In the steel industry, according to Dow Jones, PKX, a South Korean steel maker with a market cap of ~$30.0 bln, said this week the co is expected to see an operating profit of KRW2 trillion ($1.6 billion) in the second half of this year, thanks to a hike in steel prices, above operating profit of KRW500 billion in the first half, which bodes well for the co. In overseas pricing, Chinese spot steel prices rose ~6.5% to 10-month highs but strong output growth may not keep this momentum going.
In the Ag space, the USDA released its August supply/demand report on Wednesday, which painted a more bearish picture for corn fundamentals. However, December corn futures blew off the report and traded modestly higher on the day, ending the day 1.5% higher at $3.3625 per bushel as equity markets traded higher all day, the US Dollar Index traded lower and crude oil traded higher, all of which adds price support to corn futures. Overall, nearby corn futures are ending the week higher. Wheat futures outperformed corn and soybeans, posting gains of ~3.5% despite the potential for a huge wheat crop, which would be negative for prices. Soybeans finished ~3% lower on mixed news. Mid-week, soybeans found strength as imports for China were expected to be sustainable, but this remains uncertain.
In the dry bulk shipping sector, the cost of renting ships declined again this week, as indicated by the benchmark Baltic Dry Index (BDI). The index declined 3.1% on the week to 2685. Weakness continues due to seasonality, which typically calls for weaker China imports during the July-August time frame as we noted last week. While the BDI fell, related shipping stocks were mixed this week including, EXM -0.4%, DSX +1.2%, DRYS -1.3%
Provided by New Edge Research