Coffee prices scored new lows this week as Brazil was snared by emerging markets turmoil, while crude oil sank on stubborn fears over Chinese demand and global oversupply.
Top coffee producer Brazil hit the headlines after Standard & Poor’s ratings agency on Wednesday slashed the nation’s credit assessment to junk. The bombshell sent Brazil’s currency, the real, collapsing to a new 13-year low point against the US dollar.
In turn, Robusta coffee hit a two-year nadir at US$1,544 per tonne in Friday trade in London, while Arabica touched US$1.16 per pound (0.45kg) — last seen one and a half years ago — in New York.
“The further depreciation of the Brazilian real was to blame for the falling coffee price,” Commerzbank analyst Carsten Fritsch said.
“After S&P downgraded Brazil’s credit rating to junk level on Wednesday, the Brazilian currency plunged to its lowest level since October 2002,” he said.
The Latin American powerhouse saw economic growth peak at 7.5 percent in 2010 during a global commodities boom.
However, much like Russia, Brazil has been hit hard by the plummeting value of oil and other raw materials, as well as declining demand from China. Brazil, the world’s leading producer of coffee and sugar, is also a major exporter of oil, iron ore and soybeans.
Meanwhile, the oil market see-sawed this week as traders reacted to mixed signals over demand and supply, but finished sharply lower.
“This week in oil was rather a zigzag,” Fritsch said.
“Fundamentals [of supply and demand] were also mixed this week, with lower Chinese oil imports and rising US inventories being offset by falling US oil production and a bullish IEA report,” he said.
The price of crude has fluctuated wildly in recent weeks on worries over top energy consumer China and the US interest rate outlook.
Financial markets have been rocked by concern that China’s economic slowdown could herald a global recession.
“The world appears to be at a material and rising risk of entering a recession, led by emerging markets and in particular by China,” Citi analyst Bruce Rolph said in a note to clients.
“Should China enter a recession — and with Russia and Brazil already in recession — many other emerging markets, already weakened, will follow,” he said.
“This could be driven in part by the effects of China’s downturn on the demand for their exports and, for the commodity exporters, on commodity prices,” he said.
Rabobank analyst Jane Foley agreed that China’s slowdown was still looming large, while other emerging markets faced “extensive” problems arising from recent falls in commodity prices.
“In recent months it has become increasingly clear that the world economy has lost an engine of world growth,” Foley said.
“The economic expansion in China is slowing, but the problems facing emerging markets are far more extensive,” she said.
“Brazil and Russia are both in recession and the economies of many other commodity producing countries have been hit hard by supply gluts in outputs such as oil, copper and iron ore,” she added.
Oil has roughly halved in value since last year, plagued also by a worldwide supply glut and booming US shale output.
By the end of the week, oil prices were trading significantly lower in London.
Brent North Sea crude changed hands at US$47.31 a barrel — down from US$49.95 a week earlier. WTI traded at US$44.23, up from US$46.22.
Both London and New York coffee prices ended the week in the red, but sugar finished on a mixed note as rainy weather boosted hopes of a bumper crop.
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