Commodities were headed for a third quarterly drop, the longest losing streak since 2001, as demand for raw materials from crude oil to nickel shrank and producers failed to cut output fast enough.
The Reuters/Jefferies CRB Index of 19 commodities fell 6.3 per cent this quarter, adding to a 50 per cent drop in the second half of 2008. Natural gas, nickel and wheat led the declines, overwhelming advances in gasoline, copper and hogs.
"For commodities, the main movers are demand and supply and if demand is down, then the price comes down, no matter how many speculators are in the market," Afshin Nabavi, a senior vice -president at MKS Finance SA, one of Switzerland's four bullion refiners, said by telephone from Geneva today.
Demand collapsed as Japan, Europe and the US grappled with the recession. Global growth is likely to shrink for the first time since World War II and trade may decline the most in 80 years, the World Bank forecast this month. The CRB's peak in July marked the end of a bull market that began in 2001.
The contraction in global oil consumption this year will be the first since the early 1980s and the steepest since the mid-1970s, according to Nobuo Tanaka, executive director of the International Energy Agency. The Paris-based adviser to 28 nations has cut its 2009 demand forecast seven times.
The Organization of Petroleum Exporting Countries, accounting for about 40 per cent of the world supply, responded by agreeing to three output cuts since late last year. Oil advanced 10 per cent this quarter, its best performance since the second quarter of last year.
Copper demand
Copper demand will drop 9.2 per cent in 2009, leaving a supply surplus this year and next, according to Macquarie Group. Copper has advanced 31 per cent this year, buoyed by China adding to state reserves and dwindling supplies of scrap, used to make about 40 per cent of the world's refined metal.
Aluminum production will outpace demand through 2012, while zinc and lead won't move back into a shortfall until 2011, Macquarie estimates. Nickel will fare worse, remaining in surplus until at least 2012, the bank forecast. Nickel dropped 18 per cent this year and aluminum 8.6 per cent. Zinc gained 9.7 per cent and lead rallied 27 per cent.
"Price increases are probably not likely until the third or fourth quarter," said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. "In September-October, the direction will be clearer when people come back from vacation and realise that the situation is probably not as bad as they were thinking at the beginning of the summer."
Some investors are already betting on a rebound.
Michael Aronstein, the strategist who predicted last year's commodities collapse, is putting 20 per cent of the money he manages into raw materials. Theresa Gusman, who manages $215 billion for Deutsche Bank AG's DB Advisors unit, is telling clients to buy raw materials. Merrill Lynch Global Wealth Management says commodities will benefit as economies improve.
Money into commodity exchange-traded products are likely to reach $19 billion this quarter, $4 billion more than for all of 2008, Barclays Capital estimates. Commodity assets under management slid 22 per cent to $154 billion last year, Barclays estimated in a January 26 report.
Precious metals benefited this quarter as some investors sought to protect their wealth and hedge against future inflation as governments pumped more money into economies. Gold rose 4.2 per cent, extending eight consecutive annual gains. Silver climbed 15 per cent and platinum added 20 per cent, both heading for their best quarters in a year.
Agricultural commodities mostly fell, led by a 21 per cent drop in rice and a 16 per cent decline in wheat. The world grain harvest in the 12 months through June 2010 will probably be 3.4 per cent lower than the current year's record, the International Grains Council said this month. Rising reserves would keep supplies at an all-time high, the group said.
