Commodities markets rallied sharply yesterday, hitting their highest level in a month as investors rediscovered some risk appetite and the dollar fell.
Many in the industry had viewed the past month's correction - which saw key commodities such as copper and oil drop 25 per cent - as overdone, arguing that supply and demand fundamentals remained strong.
Jesper Dannesboe, strategist at Société Générale, said in a quarterly review of the commodities markets that they had "turned excessively gloomy about the global economy and about the demand outlook for commodities".
"We expect most commodity prices to trend higher at a moderate pace over the coming months and quarters," he said.
Yesterday the benchmark gauge of commodity prices, the Reuters-Jefferies CRB index, gained 1.6 per cent to hit its highest in a month - though it remained 7.5 per cent off its April peak.
The rise came as copper for delivery in three months jumped 3.1 per cent to $6,660 a tonne on the London Metal Exchange. In New York, Comex July copper jumped above the key $3 a pound level for the first time in 10 days. It has now risen 10.5 per cent since its trough last week.
The gains came as eurozone industrial production rose 9.5 per cent in April from a year earlier, the biggest increase since the data series began in 1991, easing fears that the eurozone debt crisis would hit the manufacturing sector and so knock demand for base metals and bulk minerals.
Senior mining executives say sales have not slowed down, and play down worries about a double-dip recession in the region. "We have yet to see a physical impact [in metals demand] from the European crisis," a senior executive said. "May looks stronger than April," he added, referring to his company's sales in Europe.
The other concern dogging commodity markets in recent months, that Chinese demand growth may slow on the back of monetary policy tightening, also appears to have receded.
Oil also gained in the broader rally. Nymex July West Texas Intermediate was $1.34 stronger at $75.12 a barrel, and ICE July Brent rose $0.85 to $75.20.
Elsewhere, Arabica coffee jumped to a 23-month high as the higher-quality bean followed last week's spike in the London-based robusta market on tight supplies in the physical market.
Traders said that it made sense to buy and hold futures in order to seek physical supplies rather than buying at origin where prices are higher.
"The exchange remains the cheapest source for roasters chasing higher quality coffee," said Luke Chandler and Doug Whitehead of Rabobank.
That has caused a scramble among speculators, who had bet on lower prices, to cover their positions.
ICE July Arabica surged 4.3 per cent to $1.512 a pound, its highest since mid-2008. Liffe July robusta, the lower-quality bean used mainly in instant coffee rose 0.9 per cent to $1,574 a tonne following an 18 per cent spike in three days last week.
Oats , the cereal used for food and animal feed, spiked 8.5 per cent to $2.47 a bushel to hit their daily limit. The Chicago contract has jumped more than 25 per cent in four trading days on the back of poor weather in Canada.
Source: http://www.ft.com/cms/s/0/db02134c-7814-11df-a6b4-00144feabdc0.html
