Copper, Corn May Slump on Mideast Unrest as Gold Jumps to $1,500, UBS Says

Copper, corn and rubber may tumble in the next six months, while gold climbs to a record $1,500 an ounce as turmoil in the Middle East boosts oil, fuels inflation and weakens Chinese raw-material demand, according to UBS AG.

“There’s more potential for a correction in most of the commodities,” Peter Hickson, global commodities strategist at Switzerland’s largest bank, said by phone yesterday. “There’s a risk. And the risk is driven by concerns over inflation, rising oil prices and uncertainty the Middle East represents.”

Hickson’s comments add to forecasts that the turmoil from Libya to Yemen that’s fueling a surge in energy costs may harm the global recovery and stoke inflation. Goldman Sachs Group Inc. said last month it was “neutral” on commodities in the near term as the unrest has raised concerns that global growth may slow. Crude in New York traded at more than $100 barrel today.

“There’s a fear that China confidence has been damaged by rising oil prices and the uncertainty,” said Hickson, who joined UBS in 1996 and moved to Hong Kong from London in January. Corn, cotton, rubber and copper have had sharp rises and there’s the potential for retracements, Hickson said.

Commodities measured by the S&P GSCI Total Return Index climbed for a sixth month in February, the longest rally since May 2004, as global economic growth boosted demand for metals and crop damage cut harvests. Copper and cotton reached records last month, while corn has surged 93 percent in the past year.

Bear Market

Protests that started in Tunisia in January have spread to Egypt, Bahrain, Iran and Yemen. The European Union this week imposed an arms embargo on Libya where more than 1,000 people have died in an uprising, according to a United Nation’s estimate. Saudi Arabia’s benchmark stock index plunged the most since November 2008 yesterday and entered bear-market territory.

Chinese demand for commodities may be waning, hurt by the civil uprisings in the Middle East and accelerating inflation, Hickson said. China is the world’s largest metals user. “We’re seeing inventories rising in steel, iron ore and coal prices in China haven’t shown a lot of life,” he said.

China’s manufacturing expanded at the slowest pace in six months last month as higher interest rates and lending curbs aimed at containing inflation hurt demand. Consumer prices climbed 4.9 percent in January, exceeding a government target.

Commodity futures trading volume in China dropped 21 percent in the first two months of this year, led by contracts on the Shanghai Futures Exchange, according to data provided by the China Futures Association.

Oil’s Surge

Oil for April delivery was at $99.84 a barrel on the New York Mercantile Exchange at 4:43 p.m. in Singapore after earlier gaining as much as 1 percent to $100.64. Crude may rise to $120 to $150 on the Mideast tensions, billionaire energy investor T. Boone Pickens said in a Bloomberg Television interview.

Immediate-delivery gold, which gained for a 10th year in 2010, advanced to a record $1,434.93 an ounce yesterday. Corn for May delivery approached a 30-month high of $7.4425 a bushel in Chicago on Feb. 22, while rubber futures climbed to a record 535.7 yen ($6.54) per kilogram in Tokyo on Feb. 18.

Cotton reached a record $2.0893 per pound on ICE Futures U.S. on Feb. 18 and has more than doubled in the past year. Three-month delivery copper surged to an all-time high of $10,190 a metric ton on the London Metal Exchange on Feb. 15.

“Obviously, gold is attractive,” Hickson said. “The more the market becomes concerned about inflation or concerns about unrest in Africa, more and more people will look to gold as a safe haven.”

To contact the reporter on this story: Kyoungwha Kim in Singapore at s kkim19@bloomberg.net

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

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