Bloomberg News

Commodities Drop Near Five-Month Low on Greek Euro Exit Concern

May 16, 2012

Commodities fell as talks to form a Greek government failed, boosting speculation that the country may quit the euro, and data from the U.S. and Japan added to concern an economic slowdown may reduce demand.

The Standard & Poor’s GSCI Spot Index of commodities lost as much as 1.5 percent to 626.57, the lowest level since Dec. 20. The gauge, set for to drop for the 10th day in 11 sessions, was at 627.16 at 8:48 a.m. in London. Oil fell for a fourth day in New York, trading at a six-month low, and copper dropped to the lowest price since January in London. Gold declined.

Greece will hold new elections as President Karolos Papoulias failed to form a coalition after an inconclusive May 6 vote, threatening pledged spending cuts required to secure bailouts. German Finance Minister Wolfgang Schaeuble called the new poll a referendum on whether Greece stays in the euro.

“Until the Greek situation is resolved in some way, the markets are going to price the ongoing uncertainties and the risk of further deterioration in the growth outlook,” said Peter Richardson, chief metals economist at Morgan Stanley.

Machinery orders in Japan, the world’s third-largest economy, fell 2.8 percent in March, after a report yesterday showed that U.S. retail sales rose in April at the slowest pace of the year.

Greece’s possible euro exit would hurt industrial- commodity prices as a recession limits demand and investors shun so-called risky assets, according to London-based researcher Capital Economics Ltd. Top miners including BHP Billiton Ltd. (BHP) and Rio Tinto Group said they will slow spending in expanding assets as costs rise and prices fall in a weaker global economy.

BHP Billiton

“We should pause, take a deep breath and wait and see where the pieces fall around the world,” Jac Nasser, chairman of Melbourne-based BHP today to reporters in Sydney. The firm won’t meet its $80 billion spending target over the next five years as it sees commmodity prices declining.

The euro fell to the lowest level in four months today, dropping to $1.2681, while the Dollar Index advanced for a record 13th day.

Crude for June delivery fell as much as 2.3 percent to $91.81 a barrel on the New York Mercantile Exchange, the lowest intraday price since Nov. 3, and was at $92.04. Three-month copper retreated as much as 1.8 percent to $7,625 a metric ton on the London Metal Exchange, the lowest level since Jan. 10, and traded at $7,648.

Spot gold dropped as much as 1.1 percent to $1,526.97 an ounce, a more than 20 percent decline from last year’s all-time high, and meeting the common definition of a bear market on an intraday basis. The precious metal traded at $1,533.63, 1.9 percent lower this year.

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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