Bloomberg News

Commodities Drop as Slower-Growth Speculation Curbs Demand

September 01, 2011

(Updates percentages in second paragraph and add economist comment in the seventh paragraph.)

Sept. 1 (Bloomberg) -- Commodities slumped, paced by wheat and zinc, on speculation that slowing manufacturing will curb demand for raw materials.

The Standard & Poor’s GSCI index of 24 commodities fell 0.5 percent to 671.02 at 2:31 p.m. New York time after dropping as much 0.8 percent. Zinc retreated as much as 2.9 percent in London, and wheat fell the most in two months on signs that demand for U.S. supplies is slowing. The GSCI slumped below its 200-day moving average, signaling further declines.

Euro-area manufacturing contracted more than initially estimated in August while Chinese manufacturing growth stayed near a 29-month low, purchasing managers’ indexes showed. Similar gauges for Sweden, the U.K., South Korea and Taiwan all indicated contraction.

“The economic outlook is still shaky, and that’s been driving the industrial metals and the energy sector lower,” Michael Banks, a London-based analyst at Hermes Commodities, which manages $1.9 billion of assets, said in a telephone interview. “It’s something we see continuing for the next one to three months.”

In August, the GSCI index dropped 1.7 percent, the third decline in four months. A worsening global-growth outlook reduced investor demand for raw materials as alternative assets. Bonds beat stocks and commodities last month after Standard & Poor’s decision to strip the U.S. government of its AAA credit rating roiled global markets.

Trimmed Losses

The index trimmed losses after a report showed U.S. manufacturing unexpectedly expanded, easing concern that the world’s largest economy is headed for another recession. The Institute for Supply Management said its factory index was at 50.6 last month, topping analyst estimates’ of 48.5. Figures greater than 50 signal expansion.

“In the last three weeks of this recession watch, absolutely nothing has happened to the real economy,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in an e-mail. “No recession yet.”

Copper futures for December delivery declined 4.4 cents, or 1 percent, to settle at $4.1605 a pound at 1 p.m. on the Comex in New York, the biggest loss for a most-active contract since Aug. 18.

Wheat futures for December delivery fell 33.5 cents, or 4.2 percent, to $7.58 a bushel on the Chicago Board of Trade at 1:25 p.m. A close at that price would be the biggest drop since June 30.

--Editors: Millie Munshi, Steve Stroth

To contact the reporters on this story: Diao Ying in London at dying6@bloomberg.net; Yi Tian in New York at ytian8@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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