Falling International Crude Oil Prices Weigh down Base Metals Markets

SHANGHAI, Aug. 25 (SMM) -- International commodity futures prices weakened recently, with NYMEX light crude oil futures for October delivery falling to a two-month low. The US existing home sales plunged in July, spurring market concerns over the pace of economic recovery and depressing market speculations. Meanwhile, Ireland's long-term sovereign credit rating was cut by Standard & Poor's, again triggering market concerns over the debt crisis in Europe. As a result, the US dollar and gold prices strengthened, while crude oil and other commodities prices plummeted, both exerting heavy pressure on base metals prices.

Disappointing US Housing Data Dampens Market Confidence

The National Association of Realtors announced on August 24th the US existing home sales plunged by 27.2% to a 3.83 million annual rate in July, the biggest monthly loss of 2010, setting a new low over 15 years and worse than previous forecast. Meanwhile, it would take 12.5 months to sell the existing homes on the market based on current sales pace, higher than 8.9 months in June, further weighing on already sluggish house prices. Market players predict home sales may remain sluggish over next several months. Recent economic data shows the US economy may slow again. The weaker housing data will negatively affect consumer spending, keeping consumption at the extremely low levels, which will further depress investor confidence.

In other news, after Moody's warned some European countries of a sovereign credit rating downgrade, Standard & Poor's cut Ireland’s long-term sovereign credit rating to AA- on August 24th, and said a further downgrade is possible if the fiscal cost of supporting the banking sector rises further. This news triggered market concerns over the sovereign debt crisis and banking system in the euro zone, and again depressed speculations in global financial markets.  

Plunging Crude Oil Prices Weigh down Commodity Markets

The weakening economy triggered demand concerns, resulting in sluggish crude oil market, and crude oil futures moved on a downward track over 10 of past 11 trading days. Meanwhile, crude oil inventories were at a record high, and minimal impact from hurricane fails to lend support to international crude oil prices. The New York Mercantile Exchange crude oil futures closed with declines on August 24th, with NYMEX light crude oil futures for October delivery falling by USD 1.47/bbl to USD 71.63/bbl, down 2%. Intercontinental Exchange (ICE) crude oil futures for October delivery fell by USD 1.24/bbl to USD 72.38/bbl. Large amounts of selling sent crude oil futures to a record low since May 25th, nearing USD 70/bbl. 

The US stocks slumped on August 24th as well. Investor concerns over the pace of economic recovery caused Dow Jones Industrial Average to below 10,000 points. Dow Jones Industrial Average fell by 96.80 points to 10,077.61 points, down 0.95%, Nasdaq Composite Index dropped by 25.45 points to 2,134.20 points, down 1.17%, while Standard & Poor's 500 Index declined by 11.26 points to 1,055.93 points, down 1.05%. Weakening crude oil prices and US equity markets help reverse strong gains in commodities prices since June, with the CRB index falling by 18.23 points to 262.46 points in August, down 6.49%. Market concerns are spreading in commodity markets.

Base Metal Prices Will Slip

The newly-released lower-than-expected data showed that the US economic situation is not optimistic, triggering cautious sentiment again in the market. LME base metal prices firstly rallied but later slipped last week, and extended declines in recent days. This week, LME copper for delivery in three months slipped by USD 258/mt or down 5.48%, LME aluminum for delivery in three months ended USD 20/mt lower, or down by 0.9%, and LME zinc for delivery in three months finished USD 65/mt lower, or down by 3.2%. LME copper prices experienced sell-offs by shorts after rebounding to a 3-month high at USD 7,500/mt in early August, and fell below 5-day and 20-day moving average consecutively, showing that LME copper prices will further extend downward momentum after experiencing previous constant price rally.

Technically speaking, LME copper prices were not able to stand firmly above USD 7,500/mt during the medium term rebound, and continued declining later. Currently, LME copper prices have fallen below 10-day moving average and slip towards vital supporting level of 30-day moving average. If LME copper prices fall below 30-day moving average, prices will go through deep corrections, or LME copper prices may continue to fluctuate at high levels if prices receive support above 30-day moving average. MACD index is moving down and RSI index have already declined, showing that current copper prices are under great downward pressure, with expected supporting level at USD 7,000/mt in the short term. In addition, performance of other base metals is also weak. If investors remain worrisome, base metal prices may fall to test previous price correction range set in June.

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