LONDON  - Commodity markets faltered this week after an unexpected growth outlook downgrade from key consumer China, but sentiment was soothed by a successful Greek debt swap deal and upbeat US payrolls data.
Monday’s announcement by Premier Wen Jiabao at the opening of the National People’s Congress, the annual parliamentary meeting, that China would target 7.5 percent growth in 2012 cast a pall over global markets.
A further slowdown in China — the world’s number two economy — would have a knock-on effect for most commodities because China is a leading consumer of many raw materials.
“The commodity markets have ... been rattled by official statements made at China’s annual National People’s Congress,” said Capital Economic analyst Julian Jessop.
“The headlines have been dominated by the government’s announcement that the GDP growth target for 2012 has been set at ‘just’ 7.5 percent, compared to consensus forecasts for actual growth of around 8.5 percent for both this year and next.
“However, this announcement alone should not be seen as a turning point for commodity markets. The growth target has been set at 8.0 percent every year since 2005, yet this has not prevented GDP from rising by an annual average of nearly 11 percent over this period.”
He added: “Nonetheless, this is a reminder that the years of consistent double-digit growth in China’s economy are well behind us.” Many commodities clawed back some of their losses following news on Friday that Greece has reached a vital debt-swap deal with private creditors to avert bankruptcy.
Some markets also switched into positive territory after official data showed that the US economy added a net 227,000 jobs in February, well above expectations, while the overall unemployment rate held steady at 8.3 percent.
OIL: Prices sank at the start of the week after top global energy consumer China slashed its growth outlook, but finished with gains after the Greek deal and US data. Athens revealed Friday that it had clinched a “historic” debt swap, opening the way for an urgent second bailout to save the country from bankruptcy and the eurozone from a new crisis.
The market meanwhile remains well supported by simmering geopolitical tensions over Iran. “This week, President Obama insisted diplomacy and economic sanctions can still resolve the Iranian nuclear impasse, while Iran agreed to resume direct negotiations over its nuclear programme with the P5+1,” said Barclays Capital analyst Sudakshina Unnikrishnan. The P5+1 comprises the United States, China, Russia, France, Britain and Germany.
“In our view, a military confrontation is unlikely in the middle of formal nuclear negotiations. However, if the talks are judged to be a resounding failure, war drums will likely beat louder,” added Unnikrishnan.
The prospect of new talks comes at a time of heightened tensions between Iran and its regional arch-rival Israel, and as Tehran struggles under a punishing new range of US and European Union sanctions.
Western powers and Israel suspect Iran is seeking to build a nuclear bomb under the guise of a civilian atomic programme, a charge consistently denied by Tehran, which says its nuclear drive is for peaceful purposes.
Last week, Brent had spiked to a near four-year peak at $128.40 a barrel — the highest level since July 23, 2008 — after reports of a pipeline fire in Saudi Arabia, which was later denied. By late Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in April rallied to $125.95 from $123.86 the previous week.
On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for April rose to $107.91 from $106.51 the previous week.
PRECIOUS METALS: Prices fell across the board as investors eyed the higher dollar and persistent worries over Greece. A stronger dollar weighs on demand for commodities as it makes raw materials such as gold more expensive to purchase for buyers holding weaker currencies.
By late Friday on the London Bullion Market, gold dropped to $1,687.50 an ounce from $1,707 the previous week. Silver fell to $33.87 an ounce from $35.21.
On the London Platinum and Palladium Market, platinum decreased to $1,655 an ounce from $1,704. Palladium dipped to $690 an ounce from $713.
BASE METALS: Base metals lost ground on the China news. “The downward revision to China’s GDP growth target was the trigger for selling in the base metals,” said Barclays Capital analyst Gayle Berry.
By late Friday on the London Metal Exchange, copper for delivery in three months slid to $8,490 a tonne from $8,595 the previous week. Three-month aluminium decreased to $2,229 a tonne from $2,340. Three-month lead fell to $2,159 a tonne from $2,175.
Three-month tin dropped to $23,000 a tonne from $23,800.
Three-month zinc dipped to $2,087 a tonne from $2,113. Three-month nickel retreated to $19,100 a tonne from $19,459.
COCOA: Prices recoiled at the start of the week, but ended on a positive note on optimism over Greece.  By Friday on LIFFE, London’s futures exchange, cocoa for delivery in May rose to £1,534 a tonne from £1,510 a week earlier. In New York on the NYBOT-ICE, cocoa for May eased to $2,373 a tonne from $2,381.
COFFEE: New York Arabica coffee prices sank as low as 185.10 US cents per pound, hitting to the lowest level since October 2010 on the back of ample supplies from Brazil.
“Increased sales of coffee from Brazil, the world’s largest producer country, allegedly contributed to the price slump,” said Commerzbank analyst Carsten Fritsch.
The International Coffee Organization meanwhile predicted that world output would fall 4.3 percent to 128.5 million bags in the current 2011/2012 crop year. That compared with prior guidance of 130.9 million bags.
By Friday on LIFFE, Robusta for delivery in May firmed to $2,066 a tonne from $2,013 a week earlier. On NYBOT-ICE, Arabica for May fell to 188.75 US cents a pound from 203.95 cents.
SUGAR: Sugar futures fell further as investors eyed predictions of a production surplus this year. By Friday on LIFFE, the price of a tonne of white sugar for May decreased to $631.30 from $646 the previous week.
On NYBOT-ICE, the price of unrefined sugar for delivery in May edged down to 24.02 US cents a pound from 24.85 cents a week earlier.
RUBBER: Prices fell slightly as traders awaited fresh leads while taking cues from regional markets, which eased following declining crude oil prices and China’s slower growth forecast.
The Malaysian Rubber Board’s benchmark SMR20 fell to 373.95 US cents a kilo from 377.80 cents the previous week.