ISTANBUL
Commodity markets are struggling to find direction in the third week of the new year, as dovish pricing, particularly regarding central banks, continues to lose strength, and after having selling pressure in the first two weeks, the markets took a mixed course last week.
Increasing demand for the dollar, geopolitical risks, and concerns over drought, production, and supply are causing selling pressure.
While projections that major central banks around the world will begin their dovish policies later than market expectations continue to gain traction, the Fed's Beige Book report released last week also included assessments that US economic activity has changed "little" since November.
Since the first days of the year, estimates that the Fed will start the rate cut cycle in March have been weakening, as the data released in the US indicated a strong stance in the country’s economy, and bank officials said it is too early for a rate cut.
It is premature to expect rate cuts anytime soon and more evidence that inflation is on a steady downward trajectory towards 2% is needed before easing monetary policy, said Mary C. Daly, the president of the Federal Reserve Bank of San Fransisco.
The continued decline in inflation would allow the bank to cut interest rates in 2024, but this would have to be done with caution, noted Cristopher Waller, a member of the Fed's Board of Governors.
While selling pressure in bond markets increased as expectations that the Fed would begin cutting interest rates in March faded, the US 10-Year bond yield rose 19 basis points to 4.13% last week.
Precious metals see downward trend
Demand for gold has decreased with the fading of expectations that the Fed will start interest rate cuts in March, analysts say.
Therefore, the ounce price of gold lost 1%, silver 2.3%, platinum 0.7%, and palladium 2.3% last week.
As for oil prices are concerned, they rose on expectations of an increase in global demand this year and next year, a decline in in US production due to cold weather, and increased geopolitical tensions in the Middle East.
Global oil demand will rise by 2.2 million barrels to 104.4 million barrels this year, up from 2.2 million barrels last year, with the upturn in demand expected to be driven by increased air and road transportation, as well as industrial, construction, and agricultural activity, according to a recent OPEC report.
Demand is estimated to rise by 1.8 million barrels per day to 106.2 million barrels in 2025, impacting prices to go up.
On the other hand, increased natural gas production had a downward impact on the price.
Given these changes, Brent crude oil gained 0.2% last week, while natural gas traded on the New York Mercantile Exchange went down 24%.
According to data from the National Bureau of Statistics of China, electricity generation reached 8.9 trillion kilowatt-hours in 2023, up 5.2% from the previous year.
Electricity consumption in China increased by 11.5% in primary industries producing raw materials such as agriculture, forestry, and mining, 6.5% in secondary industries, including the manufacturing sector, and 12.2% in tertiary industries such as the services sector.
Copper prices went up as copper stocks on the London Metal Exchange decreased.
Nickel prices rose following the announcement that First Quantum Minerals, a Canadian miner, will cease mining and reduce labor in its nickel and cobalt operations in Australia.
Despite ongoing concerns about the Chinese economy, data indicating that economic activity in the country remains buoyant suggests that demand for metals is increasing.
Copper soared 1.5%, lead 2.5%, aluminum 3%, nickel 1.6%, and zinc 2.3%.
Agricultural group on mixed course
Last week, wheat prices on the Chicago Mercantile Exchange fell 0.5%, corn by 0.3%, soybeans by 0.8% and rice by 0.1%.
Cocoa reached a record-high price of $4,607 per ton.
Coffee prices rose in response to forecasts of continued dry weather in Brazil, which is expected to reduce coffee yields.
Vietnam's decline in coffee exports last year also contributed to ongoing supply concerns.
There are many factors causing supply constraints in sugar as well, with news that India would maintain its ban on sugar exports and concerns that the El Nino weather phenomenon could have a negative impact on production, resulting in a sharp increase in prices.
Forecasts that sugar production in Thailand, one of the world's leading sugar producers, may fall in the 2023/2024 season contributing to higher sugar prices.
In light of these developments, cotton traded on the Intercontinental Exchange soared 1.5%, coffee 2.6%, sugar 9%, and cocoa 6.5%.
*Writing by Emir Yildirim
