Market dump covers losses
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