Commodities crumble weekly loss worst in 50 years
October 4, 2008 - 9:27AM
Gasoline, silver and corn drove commodities to their biggest weekly
decline in more than five decades on concern that a $US700 billion
($900 billion) financial rescue plan won't prevent a US recession,
dragging down global demand.
Futures measured by the Reuters/
Jefferies CRB Index of 19 raw materials tumbled 10% this week, the
most since at least 1956. President George W. Bush signed a financial-
company rescue bill into law today in a bid to stave off a US
recession as manufacturing weakened and the Labor Department said
employers cut the most jobs in five years in September.
Crude oil fell.
``Panic, risk aversion and liquidation of contracts
are characterizing the oil market as well as many other markets at the
moment,'' said Thina Saltvedt, a Nordea Bank AB analyst in Oslo.
``Prices are not only being set by fundamentals, but fears of how
crises in the financial sector may spread to other parts of the
economy.''
Crude oil slid 12% this week, the most since December
2004. The contract for November delivery slipped 9 cents, or 0.1%, to
settle at $US93.88 a barrel on the New York Mercantile Exchange, after
touching $US91.30 earlier, the lowest in two weeks. The price fell
later in the day.
The UBS Bloomberg Constant Maturity Commodity Index of 26 raw
materials fell 10%, the most ever, amid skepticism that the financial
rescue plan won't do enough to stimulate economic growth and demand
for commodities.
UBS AG, the European bank hardest hit by the credit
crisis, said today it scaled down its commodities business and cut
jobs, retaining only the precious-metals operations, the commodity
indexing unit, and exchange-traded commodity derivatives trade.
`Demand destruction'
``If global equity markets continue to trend
lower, they should remain the overwhelming force and most commodities
are likely to suffer as demand destruction and economic contraction
become paramount,'' Michael McGlone, a director in commodity indexing
at Standard & Poor's in New York, said today in a report.
Copper rose in New York, capping five straight declining sessions,
while it still fell 13% for the week, the worst slide since at least
1988. Futures for December delivery climbed 6.25 cents, or 2.4%, to
$US2.69 a pound on the Comex division of the Mercantile Exchange.
``There are three commodities I watch for weakness: steel, iron ore
and copper and all continue to weaken,'' said Daniel Brebner,
executive director of commodity research at UBS AG in London. ``The
news flow is likely to continue to push those commodities in the same
direction over the near term.''
Employers eliminated 159,000 jobs last month, the Labor Department
said, 51% more than the median 105,000 forecast by economists in a
Bloomberg News survey. The jobless rate held at a five-year high of
6.1%, matching forecasts.
Commodities `under pressure'
A ``very weak'' non-farm payrolls number could see commodities
``remain under pressure,'' Walter de Wet, a Standard Bank Group Ltd.
analyst in Johannesburg, said in an e-mailed comment late yesterday.
Commodities also fell as the euro slumped 5.8% against the dollar, the
biggest one-week drop since the 15- nation currency was created in
1999, on signs that Europe's economy is slowing. Manufacturing
contracted in the U.K. at the fastest pace in 16 years last month,
while European retail sales fell an annual 1.8% rate in August and
France slipped into a recession in the third quarter, the first in 15
years.
Under the rescue law signed by President Bush today, companies can
sell illiquid assets to the government. The plan was designed to
unclog credit markets rocked by record home foreclosures and to
contain the spreading financial crisis.
Gasoline futures for November delivery fell 2.67 cents, or 1.2%, to
settle at $US2.2283 a gallon in New York, capping a 16% plunge for the
week, the most since at least 2005.
Silver futures for December delivery rose 20 cents, or 1.8%, to
$US11.32 an ounce in New York, rebounding from a 13% drop yesterday.
The metal still fell 16% for the week, the most since March.
Corn futures for December delivery were unchanged at $US4.54 on the
Chicago Board of Trade. Most-active futures fell 16% for the week, the
most since June 1986.
Bloomberg News
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