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Bloomberg : Commodities Plunge Most in Two Years on Speculation of Slowdown

Date: Thu, 5 May 2011

The Standard & Poor’s GSCI Index of 24 raw materials fell
as much as 5.9 percent to 688.25, the biggest drop since June
22, 2009, and was at 695.61 by 4:22 p.m. in London. The gauge
has retreated for four days, the longest losing streak since
mid-March. Silver, crude oil and heating oil led the declines.
     The European Central Bank President Jean-Claude Trichet
said today the bank will monitor inflation risks “very
closely,” suggesting it may wait until after June to raise
interest rates again. The ECB raised interest rates on April 7,
joining China, India, Poland and Sweden in seeking to control
inflation. The cost of living in the U.S. rose at its fastest
pace since December 2009 in the year ended in March, the same
month when Chinese consumer prices rose by the most since 2008.
     “This could be one of the most severe corrections that
we’ve seen over the last year,” Sean Corrigan, chief investment
strategist at Diapason Commodities Management SA, which has
about $9 billion invested in commodities, said by phone from
Lausanne, Switzerland. “If things get really bad, we could
possibly retrace half of the rally of the past six to nine
months.”
     The slump in raw materials comes as Glencore International
AG sells shares in an initial public offering which may value
the Baar, Switzerland-based commodity trader at about $61
billion. Goldman Sachs Group Inc. in reports on April 11 and 15
told investors they should be “underweight” commodities in the
next three to six months. The bank still expects commodities to
advance about 10 percent over the next 12 months.
     Crude oil fell 6.3 percent to $102.36 a barrel in New York
trading, while Brent oil retreated 6.1 percent to $113.82 a
barrel in London. Gasoline declined 4.5 percent to $3.1751 a
gallon on the New York Mercantile Exchange and natural gas
fell 5.3 percent to $4.334 for a million British thermal units.
     “The market is clearly vulnerable,” Corrigan said, adding
that West Texas Intermediate crude may decline to $100 a barrel,
and copper may drop to $8,000 a ton if selling picks up. “Gold
would be the least of your worries, it’s going to be the
industrial cyclical commodities, it’s going to be the coppers
and the tins and the crudes that get hit the worst.”


                        Nonfarm Payrolls


     The U.S. government may say tomorrow nonfarm payrolls
increased 185,000 in April after gaining 216,000 the previous
month, according to the median forecast of 84 economists
surveyed by Bloomberg.  The number of claims for U.S.
unemployment benefits unexpectedly rose last week, the Labor
Department said today. China will report its trade balance,
inflation and industrial production numbers next week.
     “People are concerned what the data are going to show in
the next seven days with regards to monetary policy,” said
Walter de Wet, head of commodities research at Standard Bank Plc
in London. “There is a lot of data coming out, and the
expectations are that it’s going to be fairly bearish. So there
is some risk off the table across commodities.”
     Copper for delivery in three months fell 4 percent to
$8,757.50 a metric ton on the London Metal Exchange. Aluminum,
nickel, zinc, tin and lead also retreated. Gold for immediate
delivery declined 2.1 percent to $1,485.24 an ounce while
platinum dropped 3.2 percent to $1,764.80 an ounce.

                         Silver Futures

     Silver futures traded on the Comex exchange extended a
decline into a bear market to trade at $36.12 an ounce after
CME Group Ltd. raised margin requirements by 84 percent in less
than two weeks. The metal may fall to $34 an ounce by the end of
the week, Standard Bank’s De Wet said.
     In agricultural markets, cocoa for July delivery slid 4.8
percent to $3,057 a ton on ICE Futures U.S. in New York. Arabica
coffee declined 3.1 percent to $2.8535 a pound. Raw sugar
slumped 3.1 percent to 20.69 cents a pound. Wheat declined 2.7
percent to $7.5125 a bushel, corn retreated 3.5 percent to $7.04
a bushel and soybeans fell 3.1 percent to $13.1075 a bushel.
     Funds were still bullish commodities at the end of April,
after the S&P GSCI Total Return Index beat bonds, stocks and the
dollar every month since December, the longest in at least 14
years. Managed-money funds held a net 1.49 million futures and
options in 18 commodities by April 26, 57 percent more than a
year earlier, according to U.S. Commodity Futures Trading
Commission data compiled by Bloomberg.
     High commodity prices have yet to crimp demand as
inventories are tight, and getting out now would be
“premature,” Hussein Allidina, the head of commodity research
at Morgan Stanley in New York, said on April 29. Morgan Stanley,
operator of the world’s largest brokerage, is still “very
long” crude and corn, and favors wheat and gold, Allidina said
in an April 29 telephone interview.
     “Things are down 5 percent all the times,” Jim Rogers,
the chairman of Rogers Holdings, said by phone. “This is
normal.”
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