Mar­ket dump cov­ers losses

The Weekend Australian - Travel - - Resources -

CRUDE oil fell to a six-week low this week and cop­per erased most of this year’s gain as in­vestors sold com­modi­ties to cover losses in eq­uity mar­kets and on con­cern that slower global growth will curb de­mand for raw ma­te­ri­als.

Corn plunged the most in three months and soy­beans fell by their daily limit. White sugar, nickel and plat­inum tum­bled in Lon­don. More than half of the world’s big­gest eq­uity in­dexes are in a bear mar­ket, wiping more than $5 tril­lion from stock mar­kets this year.

‘‘ 2008 will be rough,’’ says Roland Jansen, who helps run the $129 mil­lion Mother Earth Re­sources fund in Liecht­en­stein. ‘‘ The cur­rent cri­sis is im­pact­ing com­modi­ties heav­ily. It’s huge. All those hedge funds, and other spec­u­la­tors, are get­ting out.’’

Com­mod­ity prices have ral­lied for six years, with an av­er­age an­nual re­turn of 24 per cent for the UBS Bloomberg Con­stant Ma­tu­rity Com­mod­ity In­dex of 26 com­modi­ties. That’s about four times the yearly gains in the Stan­dard & Poor’s 500 In­dex and Europe’s Dow Jones Stoxx 600 In­dex. The slide in eq­ui­ties over the past two days has prompted bro­kers to de­mand more cash or se­cu­ri­ties to pay for losses.

‘‘ At the Man­darin Ho­tel in China where I was stay­ing, the only words you heard were ‘ mar­gin call’,’’ Jansen says.

Crude oil for Fe­bru­ary de­liv­ery fell to as low as $86.11 a bar­rel this week, the low­est since De­cem­ber 6, on the New York Mer­can­tile Ex­change.

‘‘ Th­ese kinds of de­clines are un­prece­dented, so there is a lot of ner­vous­ness in the mar­ket,’’ says Steve Rowles, an an­a­lyst at CFC Sey­mour in Hong Kong. ‘‘ The out­look is for oil to con­tinue to come down.’’

Cop­per for de­liv­ery in three months fell $50, or 1 per cent, to $6820 a tonne on the Lon­don Metal Ex­change af­ter trad­ing down to $6675, the low­est since De­cem­ber 31. Nickel slid 3.1 per cent to $26,850 a tonne.

‘‘ Prices have come off but maybe we are not as weak as I would have ex­pected,’’ says Adam Row­ley, a Lon­don-based an­a­lyst at Mac­quarie Bank. ‘‘ Peo­ple are look­ing at this as mainly a fi­nan­cial is­sue rather than some­thing that will se­ri­ously im­pact in­dus­trial pro­duc­tion and met­als de­mand.’’

An­glo Amer­i­can, Rio Tinto Group and most other min­ing com­pa­nies de­clined. The 125-mem­ber Bloomberg World Min­ing In­dex fell 3.2 per cent, tak­ing its two-day drop to 9 per cent, the most since May 2006.

‘‘ The com­pa­nies we own pro­duce the stuff that the world needs to­day, to­mor­row and next year,’’ says Gra­ham Birch, who man­ages more than $40 bil­lion in nat­u­ral-re­source stocks at Black­Rock Inc. ‘‘ It’s ex­tremely un­likely that de­mand for com­modi­ties will fall across the board.’’

The US is the world’s largest cop­per user af­ter China.

Gold for im­me­di­ate de­liv­ery in Lon­don fell as much as $14.93, or 1.7 per cent, to $850.07 an ounce, and traded at $866.65. Gold has dropped 5.2 per cent since reach­ing a record $914.30 on Jan­uary 14.

Plat­inum for im­me­di­ate de­liv­ery slid $15.25, or 1 per cent, to $1523.75 an ounce.

‘‘ Sell­ing in the eq­uity mar­kets is gen­er­at­ing a ne­ces­sity to raise cash to cover losses,’’ says James Moore, a met­als an­a­lyst with Lon­don­based TheBul­lionDesk.com.‘‘In­vestors are cash­ing in com­modi­ties to cover losses else­where.’’

Trea­sury notes rose, with two-year yields ral­ly­ing the most since af­ter the ter­ror at­tacks on the US in Septem­ber 2001.

Corn for March de­liv­ery fell 3.8 per cent to $4.795 a bushel, its fifth con­sec­u­tive de­cline and the big­gest in­tra­day drop since Oc­to­ber 2, in af­ter-hours elec­tronic trad­ing on the Chicago Board of Trade. Soy­bean fu­tures slid by the daily max­i­mum. Bloomberg

May­hem: Traders in the oil fu­tures pit of the New York Mer­can­tile Ex­change shout their or­ders as oil trades be­low $90 a bar­rel this week

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