Commodities Watch: China Fights Commodity Inflation; Silver, Iron Ore, Rise, as Gold, Oil, Copper Fall; Corn, Cocoa Move Higher (CORN, MOO, MON, GLD, SLV, JJC)April 11, 2011 by Douglas A. McIntyre
First, there have been several reports that former Ivory Coast President Laurent Gbagbo has been captured by French soldiers and forces loyal to new president Alassane Ouattara. While this doesn’t necessarily mean that the near-civil war in Ivory Coast is over, it could me that warehouses full of cocoa may be released to the market. The European Union has also lifted its ban on cocoa shipments from Ivory Coast, and at least some shipments headed for Europe could begin later this week. Prices rose today, though, perhaps because traders believe that the uncertain political future of the country could derail plans to get cocoa exports going again.
Corn futures are up again, to nearly $7.82/bushel as continuing wet, cool weather in the US breadbasket threatens plantings. The Teucrium Corn Fund (NYSE: CORN) and the Market Vectors Agribusiness ETF (NYSE: MOO) are essentially flat so far today.
Fertilizer maker Monsanto Co. (NYSE: MON) is up about 1%, to $66.86, within a 52-week range of $44.61-$68.02, after getting approval from the US EPA for a new variety of genetically modified corn seed designed to combat resistance to herbicides and pesticides.
The price of gold is down about -0.5%, while WTI crude is down more than -2%. Gold is trading at about $1,467/ounce, and crude is about $110/barrel, after rising to more than $113/barrel earlier today. The SPDR Gold Shares ETF (NYSE: GLD) is down slightly to $143.13, near the top of its 52-week range of $110.54-$143.84.
Silver prices remain above $40/ounce, after rising to nearly $42/ounce early this morning. The iShares Silver Trust (NYSE: SLV) is down fractionally, to $39.82 after posting a new 52-week high of $40.33.
Iron ore is rising again, having reached a one-month high of $190/ton on rising imports to China. March imports totaled about 59.5 million metric tons, more than 22% higher than February imports. Rising steel prices have contributed to the higher iron ore prices.
China also gets the nod for pushing copper prices down slightly today as traders try to figure out the effect of rising inventories. The outlook for copper, though, is for prices to keep rising, due in large part to an expected demand increase from China. The iPath DJ-UBS Copper Total Return Sub-Index ETN (NYSE: JJC) is up about 1.65% today, to $59.60, within its 52-week range of $36.60-$61.69.
Rising commodity prices in China also get part of the blame for the country’s first trade deficit since the first quarter of 2004. Rising costs for food and energy get most of the blame, but imports of coal, iron ore, copper, and other metals have raised the cost of manufacturing.
China’s bigger problem, though, is its lack of a domestic market for its manufactured goods. China’s consumer market contributes a half the amount to the nation’s GDP as does the US consumer market.
Another large problem is real estate investment, which is fueling inflation even as the government continues to tighten interest rates and raise bank reserve requirements. If (probably, when) the real-estate bubble bursts, demand for base metals could drop dramatically and the country could decide to draw-down its stockpiles before it buys another ton of iron ore or copper. That would have an enormous impact on global mining companies.