Iron Ore Signals Commodity Bull Run to Stumble: Chart of the Day

The bull market in commodities, just two days old, may stumble as iron ore suggests weakening global growth will drag on demand for raw materials once the effect of a U.S. drought on grain supplies wanes, Saxo Bank A/S said.

The CHART OF THE DAY shows the Standard & Poor’s GSCI Index of 24 commodities entered a bull market as the drought spurred grain prices, while iron ore fell to its weakest level since 2009. The ore, which tracked a decline to a three-year low in the world index of manufacturer’s purchasing managers, isn’t part of the GSCI and has limited speculative futures trade.

“The reasons why commodity prices are higher this year are the geopolitical risk supporting energy and adverse weather supporting agriculture,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. “Iron ore now is more in line with global growth developments. Once those risks are off, then I don’t think we have a bull market in the GSCI anymore.”

Commodities entered a bull market on Aug. 21, advancing 21 percent from a June low as grain surged after the most severe U.S. drought in half a century. Soybeans rose to a record today, while corn has soared 65 percent since the middle of June. Crude oil has also rallied on tension in the Middle East.

At the same time, 62 percent iron ore arriving at China’s Tianjin port, an industry benchmark, has fallen, reaching $104.70 a metric ton yesterday, the lowest since Dec. 16, 2009. Growth in China, the biggest metals consumer, has decelerated to the slowest pace in three years as Europe’s economic crisis crimped exports. Expansion will slow to a 13-year low of 8.2 percent in 2012, the median estimate in a Bloomberg survey.

Vale SA, the biggest iron-ore producer, said this month that China’s “golden years” are gone as its growth slows.

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