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Commodities Haunted by Brazil, China Woes

Commodities Haunted by Brazil, China WoesCommodities Haunted by Brazil, China Woes

Coffee prices scored new lows in the past 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 slashed the nation’s credit assessment to junk on Wednesday, AFP reported.

The bombshell sent Brazil’s currency, the real, collapsing to a new 13-year low against the dollar. In turn, Robusta coffee hit a two-year nadir at $1,544 per ton in Friday trade in London while Arabica touched 116 cents per pound—last seen one and a half years ago—in New York.

Robusta, a bitter variety used in instant coffee, and the more expensive Arabica are the most widely traded types of the commodity.

“The further depreciation of the Brazilian real was to blame for the falling coffee price,” said Commerzbank analyst Carsten Fritsch.

“After S&P downgraded Brazil’s credit rating to junk level on Wednesday, the Brazilian currency plunged to its lowest level since October 2002.”

The Latin American powerhouse saw economic growth peak at 7.5% 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 drop in demand from BRICS kingpin 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 told AFP.

“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.”

The price of crude — which oils the wheels of the global economy — 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 — and a savage slump in demand for commodities.

“The world appears to be at a material and rising risk of entering a recession, led by emerging markets and in particular by China,” said Citi analyst Bruce Rolph 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.

“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.”

Rabobank analyst Jane Foley 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.”

Oil has roughly halved in value since last year, plagued also by a worldwide supply glut and booming US shale output.

Financialtribune.com