The biggest slump in commodities since Lehman Brothers collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil. The Journal of Commerce commodity index that includes steel, cattle hides, tallow and burlap plunged 57 per cent in May, two years after a decline that foreshadowed the worst recession in half-a-century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.
While the Organisation for Economic Cooperation and Development(OECD) raised its growth forecasts for the current and the following year on May 26, investors who stocked up on oil and more than doubled copper prices last year are dumping holdings at the fastest pace since February. Freeport-McMoRan Copper & Gold Inc. said in April that copper sales would drop 7.6 per cent this year and Chinese inventories may weaken demand later.
“As risk-taking falls, expected growth is reduced,” said Colin P. Fenton, CEO of Curium Capital Advisors LLC in Boston, who was a commodity analyst at Goldman Sachs and Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”
The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than the futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30.
