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Commodities on Fire

Burning down the House, or in this case the Global Market.

For those of you following the latest global inflation, if you think things are looking up, look again!

February has been a particularly hot month for the global commodity markets. Fuel, food, fibre, and metals have seen an unprecedented dou¬ble-digit jump in global prices, with the highest spots going to coal with a leap of 40%, rice at 24% and aluminium at 13%. And things don’t look pretty for the near future either. In¬ternational supply shortages and invest¬ment fund inflows are fanning a wildfire in ‘bush country’ that looks mighty resistant to efforts at cooling them off.

According to the latest World Bank data, potassium chlo¬ride, TSP and DAP fertilizer prices surged 41 %, 35% and 17%, respectively. These chemicals have been contin¬uing their gains of the past several months due to high energy prices, production ca¬pacity constraints, and strong demand fu¬eled by high commodity prices. Rice leapt 24% due to limited export supplies, and escalated even more as a result of deteri¬orating prospects for the next crop and the impact of higher wheat prices. Among the most obvious top-notchers, ‘coal’ prices soared 43%, due to a series of supply shortfalls in China and Australia, mainly caused by bad weather and concerns about the situation of South African exports following power shortages that will require replenishment of utility stocks.

And the bad news is it doesn’t even end here!

Lead jumped 18% on falling stocks. And a strong battery demand in China, not to mention weather-related supply reductions, also in China. Coffee robusta and arabica prices jumped 16% and 12.5%, respectively, re¬flecting tight supplies in Vietnam and In¬dia. This is largely because of the effects of earlier dry weather in Brazil. Weather it seems, or the changes within it as the effects of global warming start to surface gradually, is soon going to become the number one reason for changes in pricing of all major commodities in the world.

Wheat rose almost 15% due to record low stocks and poor winter-wheat crop prospects in southwest US and northern China. Supplies of high protein wheat will be limited until midsummer when the new crop becomes available. Cocoa for chocolates rose about 14% to it’s highest in the last 24-years, as a shortfall is expected to persist this year, partly due to dry weather in January in Cote d'Ivoire and Ghana.

Right now it seems to be a case of ‘you name it and it’s on the list’!

Aluminium prices rose 14% due to power cuts to energy-intensive smelters in China and South Africa which reduced production capacity severely. Even sugar rose 13% due to increased use of Brazilian sugar cane for ethanol and the consequent drop in ex¬portable sugar supplies. Soyabean oil and palm oil, which are close substitutes, rose about 12% and 11 % respectively, mainly from the fear that China's weather-related soyabean crop losses in the recent past will raise Chinese imports.

Cop¬per increased by almost 12% on falling stocks. Another reason for the same being, a pick-up in China's imports, and expected tight supply conditions this year as a result. The overall world consumption of metal is steadily on the rise. Silver climbed 10%, egged on by strong investment demand, and led by a major fall in interest in many other finan¬cial assets. It is also expected to act as a hedge against the falling; dollar and rising inflation. Palm kernal oil and coconut oil, which are close substitutes, increased 9% on in¬creased import demand and supply tight¬ness. Maize rose almost 8% influenced by wheat and soyabean prices. Con¬cerns are that high wheat and soyabean prices will limit planting of maize to stabilize the other two crops and cause year-¬ending stocks to decline.

Crude oil prices rose unchecked touching a historical high of US $ 110 a barrel. The record is no relief since nearly everyone expects this will get breached again and again. For India the crude basket has touched the three digit mark. In early March, the US W'TI reaching nearly $106/bbl. Crude oil in¬ventories have increased seasonally but remained relatively low, and geopolitical is¬sues continue to raise concerns about supply. OPEC decided on March 5 to again leave production levels unchanged. Curiously they seem worried about slowing demand.

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