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Gold and industrial metals rally, sugar rises

Industrial metal prices, particularly aluminium, copper and zinc, rallied on the London Metal Exchange (LME) last week, helped by a weaker dollar and easing China’s health measures.
A tonne of aluminum for delivery in three months was trading at $2,951 on May 20, 2022, up from $2,788 at the close seven days earlier.

A weaker dollar allows for greater purchasing power for investors using other currencies.
The aluminum market has “tightened significantly,” assures Daniel Briesemann, an analyst at Commerzbank. Evidence of the increased demand is the LME stockpiles with only 500,000 tons of aluminum stored “at the lowest level since November 2005”.

“However, the recovery in metal prices appears to be resting on shaky foundations,” argues the expert. Concerns about demand from China, a very large buyer of industrial metals, remain for him.

In recent months, the Middle Kingdom has had to deal with a resurgence of the pandemic, which is affecting several parts of the country to varying degrees. “While Shanghai is gradually emerging from containment, the capital Beijing could be on the verge of entering as Covid cases continue to rise there,” affirms Daniel Briesemann.

gold awakens

Gold prices, which had suffered from the strength of the US dollar in recent weeks, recovered over the week.
The price of an ounce had fallen to $1,786.90 on May 16, its lowest level since early February, before bouncing back. It was trading at $1,843.93 on May 20, up from $1,811.79 seven days earlier.

“Over the past month, gold has taken a double hit from a strong dollar and a FOMC (US Federal Reserve Monetary Policy Committee, Fed) signaling an aggressive pace of rate hikes to fight inflation,” said Saxo Bank analyst Ole Hansen.

Gold is traded in dollars on the world market, so the rise in the greenback makes it more expensive for investors using other currencies. Conversely, investor concerns about the US economic outlook, which could prompt the Fed to slow rate hikes, weighed on momentum in the greenback and US bonds.

In that regard, “gold took advantage of the risk aversion move in the market this week,” Han Tan, an analyst at Exinity, told AFP. “It will be necessary to see if this move continues in the context of rising interest rates,” notes Oanda analyst Craig Erlam.

The sugar comes off

Sugar prices rose during the week, helped by lower supply, which mainly came from Brazil, the United States and possibly India.

In New York, a pound of raw sugar for delivery next July was worth 19.90 cents on May 20, up from 19.17 cents eight days earlier. In London, a ton of white sugar was worth $554.60 for delivery in August, up from $535.70 at the close the previous Thursday.

“Two of the largest beet-producing states in the US (Minnesota and North Dakota) saw plantings significantly delayed by cold, wet weather,” said Rabobank analysts, who expanded supply of white sugar.
Brazil’s sugar production is also down 51% year-on-year, according to analysts reading data from the latest report from national industry association Unica.

Brazil, the world’s largest sugar producer, “holds a lot of the cards for near-term sugar prices,” with “the possibility of factories favoring ethanol production,” they say. High oil prices encourage Brazil’s use of sugar cane to produce ethanol, which has become more competitive, reducing available sugar and driving up prices.

In addition, “India could decide to apply restrictions on sugar exports as it has done on wheat,” the analysts say. In fact, on May 14, the country announced the export ban on wheat, except with special government approval, given the drop in its production, particularly due to extreme heat waves.

However, sugar consumption remains a problem, according to analysts at Rabobank, “particularly in regions where war or health restrictions due to Covid-19 are ongoing”.

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