Cocoa prices surge on output fears over Ebola outbreak

  Cocoa prices rocketed to levels last seen in spring 2011 as traders fretted over the deadly Ebola virus outbreak in West Africa, home to most of the world’s production

AFP/London

Cocoa soared to 3.5-year highs last week on fears the Ebola outbreak could reach Ghana and Ivory Coast, the two biggest producers of the commodity used to make chocolate.

Brent oil prices however tumbled to two-year lows on worries over ample supplies and weak demand, and on the back of the strong dollar.

Commodity markets also digested news that the US economy—a key consumer of raw materials—grew more strongly than thought in the second quarter. Gross domestic product surged at an annual rate of 4.6%. That was the fastest since late 2011 and revised from 4.2%.

COCOA: Prices rocketed to levels last seen in spring 2011 as traders fretted over the deadly Ebola virus outbreak in West Africa, home to most of the world’s production.

Over the past fortnight, cocoa prices jumped by about ten% as fears escalated that the epidemic could spread to top exporters Ghana and Ivory Coast.

The market rallied Thursday to £2,187 per tonne in London and $3,399 per tonne in New York, the highest points for three and a half years.

Health systems in Liberia, Sierra Leone and Guinea have been overwhelmed by the epidemic, which has infected more than 6,200 people in west Africa and killed nearly half of them since late last year.

“Ebola continues to spread and as it approaches the world’s largest production region of Ivory Coast and Ghana worries of disruptions to supplies have increased,” said Saxo Bank analyst Ole Hansen.

“October is a critical month for the cocoa market as it signals the beginning of the harvest. Any disruptions in transportation or labour shortages in the world’s two largest producers could have a significant positive impact on the price.”

“As a result of these worries and speculative buyers jumping in, the price reached a 3.5-year high.”

The New York market could potentially beat the previous record high of $3,826 per tonne, set in 2011 when Ivory Coast’s civil war sparked major supply disruptions.

“So far neither the Ivory Coast or Ghana … have had confirmed cases of Ebola ... and both countries have closed their borders with affected countries to try and reduce the threat,” Capital Economics analyst Thomas Pugh told AFP.

“However, many of the workers who pick cocoa plants migrate from the affected countries, so supply could be damaged if these migrant workers aren’t around to pick the crop. This is probably contributing to the rise in prices.”

Ghana and Ivory Coast account for 60% of global cocoa output, while West Africa produces 72% of the world’s cocoa.

“If these two countries were to be seriously hit by Ebola then prices could soar—maybe double,” Pugh added.

“Workers would stay away as much due to peoples’ fear of crowded places such as work, as from actual deaths from Ebola.”

Ecobank analyst Edward George added both nations had a “fragmented” cocoa sector which relied on farmers transporting their own crops in a “disjointed” fashion.

“The entire sector is fragmented, we’re talking hundreds of thousands of farmers with plots of one and a half hectares or two hectares,” George told AFP.

“All of the buying is disjointed; its individuals going around on motorbikes, in cars and trucks buying cocoa.

“So if there were an outbreak in this zone you would have to suspend all purchases. Imagine taking 60% of the world cocoa off the market at the beginning of the season—you could see a dramatic increase in prices.”

By Friday on LIFFE, London’s futures exchange, cocoa for delivery in December leapt to £2,151 a tonne from £2,069 a week earlier.

On the ICE Futures US exchange, cocoa for December jumped to $3,356 a tonne from $3,200 a week earlier.

OIL: Brent prices dived Wednesday to $95.60 - the lowest level since July 2012 - on worries over abundant crude supplies, poor global economic data and a weaker demand outlook.

“The predominant drivers (of prices) remain ample global supply and a perceived weakening in demand as the world’s largest consumers continue to indicate slowing economic growth,” said Inenco analyst Dorian Lucas.

Losses were capped somewhat by worries over US-led airstrikes against jihadists in the oil-rich Middle East, and after news of a surprisingly heavy drop in US crude inventories.

The Department of Energy said Wednesday that US crude inventories fell 4.3mn barrels in the week ending September 19, confounding forecasts of an increase.

A drop in US stockpiles typically indicates stronger demand in the world’s biggest economy and top crude consumer, and tends to support prices.

The market was also buffeted by rebounding Libyan exports that added to oversupply. Light Libyan crude is valued by refiners in Europe as an alternative to Brent.

By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in November stood at $96.91 a barrel compared with $97.76 one week earlier.

On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for November gained to $93.16 a barrel, compared with $92.85 for the expired October contract a week earlier.

PRECIOUS METALS: Gold sank to an eight-month low point as traders took their cue from the rallying dollar.

Gold on Thursday dropped to $1,206.83 an ounce—the lowest level since January.

At the same time, sister-metal silver hit a four-year low at $17.33 an ounce.

The euro plunged Thursday to a near two-year trough of $1.2697, hit by worries over the health of the stuttering eurozone economy and growing expectations of higher US interest rates.

The single currency briefly dived even lower on Friday following the upbeat US GDP data, hitting $1.2678 - its lowest level since November 2012.

A stronger greenback makes dollar-priced gold and commodities more expensive for buyers using weaker currencies.

That tends to dent demand and push prices lower.

Separately, Britain said Thursday that new powers to punish rigging of Libor interest rates with criminal sanctions should be extended for seven major benchmarks, drawing in gold, oil and currency markets.

The government said it wished to extend legislation to the London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver. Also targeted is the ICE Brent futures contract.

By late Friday on the London Bullion Market, the price of gold had slipped to $1,213.75 an ounce from $1,219.75 a week earlier. Silver decreased to $17.54 an ounce from $18.45.

On the London Platinum and Palladium Market, platinum reversed to $1,304 an ounce from $1,344.

Palladium eased to $802 an ounce from $823.

BASE METALS: Base or industrial metal prices diverged amid better-than-expected Chinese manufacturing data.

HSBC’s flash purchasing managers index (PMI) for the Chinese manufacturing sector came in at 50.5 in September, up from a final reading of 50.2 in August.

Analysts had expected the gauge would fall below the 50.0 reading that would indicate contraction.

By Friday on the London Metal Exchange, copper for delivery in three months fell to $6,730 a tonne from $6,814 a week earlier.

Three-month aluminium dropped to $1,960.75 a tonne from $1,982.

Three-month lead rose to $2,083.75 a tonne from $2,074.

Three-month tin dipped to $20,784 a tonne from $21,210.

Three-month nickel slid to $17,372 a tonne from $17,836.

Three-month zinc increased to $2,282.50 a tonne from $2,258.

SUGAR: Futures rebounded from a four-year low hit the previous week.

By Friday on LIFFE, the price of a tonne of white sugar for delivery in December traded at $427.60 compared with $412.10 a week earlier.

On ICE Futures US, the price of unrefined sugar for October rallied to 16.42 US cents a pound from 13.76 US cents a week earlier.

COFFEE: Prices drifted lower in subdued deals.

By Friday on ICE Futures US, Arabica for delivery in December fell to 181.60 US cents a pound from 181.95 cents a week earlier.

On LIFFE, Robusta for November declined $1,946 a tonne from $1,950 a week earlier.

RUBBER: Kuala Lumpur prices receded.

The Malaysian Rubber Board’s benchmark SMR20 stood at 145.95 US cents per kilo on Friday, down from 152.85 US cents the previous week.