Business

Tuesday August 4, 2009

Commodity prices soar on speculative momentum

By IZWAN IDRIS


PETALING JAYA: Commodity prices surged yesterday, with crude palm oil (CPO) price on Bursa Derivatives up by almost 5% in a day, as rising speculative momentum pushed prices of basic raw materials from crude oil to copper to new multiple-months’ highs.

A key commodity market barometer, crude oil futures in New York rose to above US$70 per barrel yesterday in Asian trading hours. Brent crude oil jumped 1.5% in midday London to its highest level since October at US$72.77.

Brent crude, which is the benchmark price for two-third of global supply, had risen 59% so far this year.

A Bloomberg report showed hedge funds and other large speculators increased their bets on prices of oil to rise, based on latest weekly data from the US Commodity Futures Trading Commission.

While numerous news reports suggested that investors’ new found appetite for commodities was fuelled by hopes for global economic recovery, trends in recent years showed that commodity markets shared an inversed relationship against the US dollar.

An index of the US dollar against its six major trading currencies yesterday dropped to its lowest level this year. This boosted the appeal of commodities quoted in US dollar to buyers outside the United States.

Gold, the traditional hedge against inflation, rose almost US$2 an ounce to a three-month high of US$956 in the spot market as at 7pm local time yesterday.

On Bursa Derivatives, CPO most-active futures contract climbed RM106, or 4.8%, to close at RM2,295 per tonne yesterday. In China, CPO futures contract traded on the Dalian Commodity Exchange rose 3.4% yesterday.

China is the biggest user of edible oil, of which palm oil is the cheapest. Price of the vegetable oil’s closest rival, soyoil, rose 1.6% to 35.6 cents per pound in Chicago.

“The commodity rally is being driven up by speculators,’’ said Jim Teh, a palm oil trader at Interband Group in Kuala Lumpur. “Actual palm oil buyers are still cautious and volume transacted in the physical market is still low.’’

But demand for natural rubber had gone up in recent months, as rising crude oil prices pushed up the cost of synthetic rubber. The price of local tyre grade Standard Malaysian Rubber No. 20 (SMR 20) rose 1.3% yesterday to RM6.40 per kg.

“Natural rubber is up because of crude oil,’’ said Andy Lim, the managing director at TT Latex Sdn Bhd, a local latex and SMR producer.

Manufacturers use synthetic products derived from crude oil to blend with natural rubber to make tyres. Higher crude oil prices encourage tyre makers to use more natural rubber in their mix.

Meanwhile, the rising commodity prices phenomenon is not limited to the “soft” market. At the Kuala Lumpur Tin Market, tin prices rose US$40 to settle at US$14,490 per tonne yesterday.

Local tin prices had risen 40% year-to-date. This pales in comparison with copper’s 82% surge on the London Metal Exchange over the same period.


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