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Cotton tops all-time high after strong buying in Asia

Commodities are seeing a rather mixed session today, generally holding near flat with the notable exception of cotton, which topped a record high above 120c/lb in electronic trade. As expected, yesterday’s OPEC meeting came up with nothing untoward, maintaining quota levels and reiterating the importance of members’ compliance with them.  Similarly, the weekly US Department of Energy (DoE) inventory data came in as expected, doing little to move price action during the session.

The move in cotton prices comes following a strong move to bid in Asian trade overnight, as US Department of Agriculture (USDA) and Chinese import data from earlier in the week, continue to boost demand. It is interesting to note that cotton is one of the few major commodities that currently has a supply deficit, and is not just seeing price appreciation on the back of the US dollar weakness. More than once this past week have cotton future prices on Nymex hit the upper limit imposed by the exchange, a signal of how even the current demand and price appreciation is somewhat muted compared to where trading would drive it. Other agriculturals are also seeing some mild gains today, again coming off the back of this week’s buoyant data and some relatively strong buying action in the Asian markets overnight.

Trading in the dollar, and by implication the precious metals, has been comparatively subdued during the session, although a speech by Fed Chairman Ben Bernanke later today is likely to have traders and pundits alike, watching for any further indication of a second phase of quantitative easing coming from the reserve. Spot gold is still managing to hold near record highs today, after having peaked at $1,387/oz yesterday, although it is an exception for the precious complex today, with both silver and the Platinum Group Metals (PGMs) all  trading lower.

This comes despite the Chinese Association of Automobile Manufacturers, saying the number of cars sold in the country in September saw a 16.9% increase year-on-year, to 56 million; fundamentally bullish for platinum and palladium, which are used extensively in catalytic converters. Interestingly for gold, the world’s largest gold ETF, SPDR Gold Shares, which has seen a net liquidation of the precious metal over the past few weeks totalling some 22 tonnes, yesterday reported a net purchase of 19 tonnes, with traders suggesting that wider moves with fund purchases are helping to support the metal, given the ‘fever’ that record gold prices inevitably has on private and institutional investors alike.

As highlighted, the US DoE weekly inventory data yesterday came in pretty much in line with market expectations, showing a small 0.4m/bls decline in crude stocks, a 1.8m/bls fall in gasoline stocks and a 0.3m/bls decline in middle distillates. The data also showed that crude imports for the week fell by 0.8m/bls, while refinery utilisation fell by 1.2 points to 81.9%. The fall in gasoline stocks did come to the market as a mildly bullish signal, offering support to RBOB Gasoline prices, although this quickly petered out.

The DoE also reported a somewhat larger than expected 91billion cubic feet (bcf) net injection to the US natural gas storage in the week, sparking a mild sell-off in the commodity. The OPEC meeting came up with nothing unexpected also, maintaining production quotas and calling for members’ adherence to those limits. Although not really having an impact on crude price, it is interesting to note that the cartel’s press release regarding the meeting, placed much more emphasis on the cartels readiness to expand production if needed, than it did on compliance with current quotas. Although this as yet may not signal a move to increase supply will be forthcoming at their next meeting scheduled December 11, it may be one of the strongest indications to date that OPEC are begin to move in that direction, after a long period of supply tightening.

Base metals are following the precious complex today, generally trading flat to slightly lower as a more volatile week of price action fades heading into the weekend. From a technical standpoint, Comex copper prices are still in the midst of a short to medium-term uptrend, although fading 10-day momentum and a sell signal in the daily stochastics may indicate that some consolidation is on the cards, with traders watching for a definitive break and close below the 5-day moving average at $3.81/lb, and below there from uptrend support near $3.75/lb.

Disclosure: no positions