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Commodities Post Biggest Monthly Drop in a Year on Debt Woes

Oil tankers anchored near the Port of Long Beach, California. Crude-oil futures prices fell 10% in May. Photographer: Tim Rue/Bloomberg
Oil tankers anchored near the Port of Long Beach, California. Crude-oil futures prices fell 10% in May. Photographer: Tim Rue/Bloomberg

May 31 (Bloomberg) -- Commodities posted the biggest monthly drop in a year as the sovereign-debt crisis in Europe and accelerating inflation in China fanned speculation that global economic growth will slow.

This month, the Standard & Poor’s GSCI Spot Index of 24 raw materials dropped 6.8 percent, the first decline since August and the biggest drop since May 2010. Silver led the slide, slumping 21 percent, followed by nickel, and crude oil slid almost 10 percent. The gauge gained 1.2 percent today.

Central banks raised interest rates to slow inflation, which climbed to a 32-month high in China, exceeding the government’s 4 percent target. In May, the euro dropped against the dollar, snapping a five-month rally, amid the region’s escalating debt woes.

“The May sell-off is a broad-based risk-averse move coming from a combination of concerns about Europe’s debt crisis, China’s inflation and U.S. data,” said Andy Kaleel, the chief executive officer of Sydney-based H3 Global Advisors Pty Ltd., which manages about A$600 million ($642 million).

European Union leaders will decide on a new aid package for Greece by the end of next month, said Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers.

The region’s financial problems aren’t confined to Greece, and a reorganization of the continent’s banking system is necessary, Laurence D. Fink, the chief executive officer of BlackRock Inc., the world’s largest asset manager, said today in a Bloomberg Television interview.

‘Beyond Greece’

“The European problem is way beyond Greece,” Fink said. “Greece is the most immediate problem. I find it very difficult to restructure Greece without the understanding that we’re probably going to have to restructure Ireland and Portugal.”

The Chinese central bank has raised reserve requirements at banks eight times since November and increased interest rates four times since October.

This month, the MSCI All-Country World Index of equities fell 2.5 percent this month, the most since August.

Silver’s monthly drop was the biggest since August 2008. Today, futures for July delivery rose 44.2 cents, or 1.2 percent, to $38.305 an ounce on the Comex in New York. CME Group Inc., the Comex owner, raised margin costs after the metal climbed to a 31-year-high on April 25. The price has more than doubled in the past 12 months.

Silver may fall below $30, Dominic Schnider, an analyst at UBS AG’s wealth management research, said in a report dated yesterday. The higher price “cannot be sustained by industrial demand,” he said. Silver is used in jewelry, electronics and photography.

In May, crude oil on the New York Mercantile Exchange fell 9.9 percent, the biggest drop in a year, partly on concern that Europe’s debt crisis will erode fuel demand.

This month, nickel on the London Metal Exchange dropped 12 percent. OAO GMK Norilsk Nickel, the world’s largest producer, said on May 23 the market will return to balance this year from the 2010 deficit as production increases at a faster rate than consumption.

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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