Commodities Market Caught in Fed’s Tightening Grip in February

Last month witnessed a decline in commodity prices due to the deferral of expectations for interest rate cuts by the Federal Reserve (Fed). Uncertainties surrounding the Fed’s monetary policy, global manufacturing concerns, and increased demand for the dollar contributed to selling pressure in the commodity market.

Minutes from the Federal Open Market Committee meeting revealed officials’ concerns about rapidly easing monetary policy. The minutes indicated that Fed officials emphasized the possibility that achieving further progress in reducing inflation might take longer than expected.

A mixed trend was observed in precious metals last month. While gold and platinum prices rose by 0.5% and 1.9% respectively, silver and palladium prices dropped by 0.7% and 3.3%. Gold prices surged as investors sought the “safe haven” amid tensions in the Middle East. Platinum surpassed palladium for the first time since 2018, but concerns over stable supply and declining demand weighed heavily on palladium prices.

Base metal prices experienced a decline due to concerns over weakening demand outlook driven by the deferral of Fed interest rate cut expectations and weak economic data from China. Copper, aluminum, zinc, and lead prices dropped, while nickel prices increased.

Analysts cautioned that persistently high interest rates, sluggish manufacturing activity in Western economies, and ongoing challenges in the Chinese economy could continue to dampen demand for base metals in the future.

Increased copper production in Chile and Australia’s preparations for broader support for the green energy industry positively impacted nickel prices. Supply concerns also contributed to the rise in nickel prices.

According to the Australia-based financial services and infrastructure asset management company Macquarie Group, restrictions on mining activities in Indonesia could lead to a surprise surplus in the global nickel market this year.

Expectations of decreased demand due to forecasts of rising temperatures led to a decrease in natural gas prices. In the energy sector, the barrel price of Brent crude oil rose by 1.7%, while the price of natural gas traded on the New York Mercantile Exchange fell by 11.4%.

Geopolitical tensions in the Middle East due to the Israel-Palestine conflict continued to impact oil prices, alongside a decrease in gasoline inventories in the United States. Expectations of OPEC extending its production cuts into the second quarter of this year also influenced the increase in Brent crude oil prices.

In the agricultural sector, sharp fluctuations were observed last month. Prices of wheat, corn, and soybeans declined, while rice prices increased. Cotton and cocoa prices surged, while coffee and sugar prices decreased.

The market saw decreased wheat and corn production forecasts leading to price drops, while reduced rice production predictions boosted prices. Concerns over reduced demand in China affected soybean prices.

Threats posed by Harmattan winds in West Africa to cocoa harvesting, and decreased cocoa deliveries from Ivory Coast due to increased temperatures and reduced rainfall, led to price increases in cocoa. Reduced cotton production forecasts globally pushed cotton prices up.

Reports of ethanol production preference over sugar in Brazil led to a decrease in sugar prices, while expectations of a surplus in the coffee market caused coffee prices to decline. The depreciation of the Brazilian real also negatively affected the coffee market.

source: prepared by Melisa Beğiç

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