Commodities Prices Tumble as Investors Worry About 2016 Growth

  • Brent crude oil drops to 2-month low below $45 a barrel
  • Commodities trader Glencore plunges more than 10 percent

Have Commodities Pushed Miners to a Tipping Point?

Commodities prices plunged across the board on Thursday, pulling down the share value of mining and oil companies, as investors took a pessimistic view about global economic growth in 2016.

The Bloomberg Commodity Spot index, which tracks the value of 22 raw materials, fell to its lowest since August, approaching levels last seen during the global financial crisis in 2008-09.

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Yusuf Alireza, chief executive of Noble Group Ltd., one of the world’s largest commodities traders, told investors on Thursday he didn’t see any change in supply and demand that “will result in higher prices any time soon.”

“I don’t see any step change on the demand -- and we haven’t seen any significant change in supply either,” he said, adding that the appreciation of the U.S. dollar was also a “headwind” for commodity prices into 2016.

Glencore Plc, the commodities trader-cum-miner, dropped below a pound for the first time in a month after the price of base metals including copper and zinc plunged to a six-year low. Its shares dropped 11 percent to 92.43 pence at 2:45 p.m in London trading.

nov 12 glen2

Anglo American Plc, a miner with operations from Brazil to South Africa, dropped to its lowest since it was floated in London in 1999. Its shares are down more than 60 percent since January.

Investors have sold commodities holdings and shares of oil producers and miners because they’re worried about economic weakness in China -- the main engine of raw materials demand growth -- and other emerging countries. "Global growth is weak," Alireza said.

The strength of the U.S. dollar as investors anticipate that the Federal Reserve will raise interest rates before the end of the year has also hurt commodities prices. Most raw materials are priced in dollars and historically a stronger U.S. currency tends to result in weaker commodities prices.

Brent crude, the global oil benchmark, fell below $45 a barrel for the first time in more than two months. Oil prices have nearly halved over the last year after Saudi Arabia led a change in OPEC policy to battle for market share rather than support prices. The cartel, which controls more than 40 percent of global oil supply, will meet in Vienna on Dec. 4 to review its policy.

The renewed downturn in oil and commodities prices heightens the pressure on natural resources executives to deliver on their debt reduction programs and cut costs to sustain their dividends. Natural resources groups from Chevron Corp. to BHP Billiton Ltd. have announced large reductions in investment for 2015 and 2016 to adjust to lower prices.

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