Commodities maintain strong gains, Coffee, Sugar outperform: Saxo Bank

LONDON - Commodities continued to show strong growth in February with Coffee and sugar outpeforming followed by precious metals. Growth dependent commodities in energy and industrial metals also showed positive returns, according to Ole S Hansen, Head of Commodity Strategy at Saxo Bank.

Adverse weather conditions buoyed up energy complex while hottest January in Brazil with the least rain in 20 years led to lower of production forecasts for coffee, sugar and soybeans. Exraordinary rally in Arabica Coffee extended for the second week, Saxo Bank weekly report said.

Coffee reached a 16-month high after rallying more than 50 percent this year. The ICE exchange where Arabica coffee futures are traded responded by raising the margin on holding coffee futures by 65 percent in order to encourage speculative traders to liquidate positions or take profit. The current combination of technical and fundamental support has made it easy for speculative traders to drive the price higher but even if we should see a sizable drop in production, the market is still not tight thanks to the very good crops we have seen in recent years.

Gold and silver spent the week consolidating their recent strong gains. Momentum and technical traders have returned to the buy side and are waiting for the driver to carry the metals higher. A failure to find such a driver leaves both metals exposed to some long liquidation should the 200-day moving averages at 1,302 and 21.02 respectively give way.

WTI crude broke above 100 USD/barrel for the first time this year as it headed for a sixth weekly gain and in the process narrowed the discount to Brent crude to USD 7/barrel. Colder-than-usual US weather continues to support strong refinery production due to increased demand for heating oil and the ongoing removal of the supply glut at Cushing, Oklahoma due to improved pipeline infrastructure has given WTI and edge over Brent.