Commodities Head for Biggest 2012 Decline

Commodity prices posted their biggest drop this year on signs that slowing global economies will erode demand for raw materials.

The Standard & Poor’s GSCI Spot Index of 24 commodities dropped 1.5 percent to close at 692.61 in New York, the biggest loss since Dec. 14. Declines were paced by arabica coffee, which dropped to the lowest since October 2010. Lead tumbled as much as 4.1 percent, and gold touched a five-week low.

European economies shrunk in the fourth quarter and U.K. retail sales slid for a second month in February, separate reports showed today. China, the world’s biggest consumer of everything from aluminum to cotton to soybeans, yesterday lowered its economic-growth target. Commodities may face a “sizable” correction as the global expansion cools, INTL FCStone Inc. said yesterday.

“Across the board, it’s just a panic,” Harry Denny, a broker at Hoboken, New Jersey-based PVM Futures Inc., said in a telephone interview. “China is just so important for commodities. We knew there was a slowdown coming, but we just hadn’t heard it, and when we heard it, a lot of guys went running.”

The GSCI gauge has still rallied 7.4 percent this year as reports signaled manufacturing gains in China and India and as the U.S. job market improved. A drought in South America has curbed the outlook for supplies of soybeans, corn and sugar. In the week ended Feb. 28, money managers lifted their bets on a commodity rally to the highest since September, U.S. government data show.

‘Damaged’ Outlook

“The impetus, the momentum, is damaged” for commodities, Edward Meir, an analyst at INTL FCStone in New York, said in a telephone interview today. “All of the good news seems to be baked in.” Prices may tumble 10 percent from this year’s highs by early April, he said.

Commodities also fell today as a stronger dollar eroded demand for raw materials as alternative assets. The U.S. Dollar Index, a measure of the greenback against six currencies, touched a two-week high today.

China’s economy may expand 8.5 percent this year, down from 9.2 percent last year, according to a Bloomberg survey of 21 analysts.

“People are factoring that China is really slowing,” James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview. “European growth is going to slow dramatically after the implementation of austerity measures.”

To contact the reporter on this story: Marvin G. Perez in New York at mperez71@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.