Commodities Drop to Five-Month Low on Greece Concern

Commodities dropped to a five-month low, extending this year’s decline, on mounting concern that Greece will leave the euro, roiling financial markets and eroding the outlook for raw-material demand.

The Standard & Poor’s GSCI gauge of 24 raw materials fell 1.6 percent to 617.96 at 3:15 p.m. in New York, after touching 613.95, the lowest since Dec. 19. The index is down 4.2 percent this year, heading for the first annual decline since the recession of 2008.

Equity markets fell from Asia to the Americas and the euro dropped to its weakest level against the dollar since July 2010 on speculation that European Union leaders meeting today will provide no new measures to stem the sovereign-debt crisis. Greece is preparing for elections on June 17, after winners in a vote this month failed to create a government.

“The market is being driven by a lot of fear right now,” Claudio Oliveira, the head of trading at Castlestone Management LLC in New York, which manages about $300 million, said in a telephone interview. The commodity selloff “has the potential to go further if this uncertainty remains, and that depends on what European leaders are willing to do,” he said. “The Greek issue needs to be resolved.”

Crude-oil futures for July delivery tumbled to as low as $89.28 a barrel in New York, the first time since November that a most-active contract fell below $90. A government report showing that U.S. crude supplies rose to a 22-year high contributed to the declines. Gold futures for June delivery lost as much as 2.8 percent to $1,532.80 an ounce. The metal is down 7 percent this month and heading for the first annual decline since 2000.

Commodity Companies

The decline in commodities triggered a drop in related equities. BHP Billiton Ltd. (BLT), the world’s biggest mining company, fell as much as 1.7 percent, and Rio Tinto Group, the third- largest mining company, decreased as much as 5.2 percent in London.

Silver, platinum and palladium declined along with copper, zinc and lead, as Europe’s debt crisis may hurt global growth and sap demand.

“The way I characterize this economy is it’s a triple-B expansion,” Joachim Fels, chief economist at Morgan Stanley, said in a Bloomberg Television interview. “It’s bumpy, it’s below par and brittle, and I think central banks will step up and keep the expansion alive. We’re already seeing contagion into global financial markets.”

Cotton tumbled to a two-year low, and soybeans fell to the lowest price for a most-active contract since March 29.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editors responsible for this story: Steve Stroth at sstroth@bloomberg.net; James Poole at jpoole4@bloomberg.net

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May 23 (Bloomberg) -- Joachim Fels, chief economist at Morgan Stanley, talks about the global economy. He also discusses Europe's sovereign debt rating, Greece's potential exit from the euro, and China's growth outlook. He speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)