Commodities plunge amid market turmoil

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31 May 2010

Commodities in May experienced their steepest monthly decline in 18 months. Key sector index was down more than eight per cent, as the European debt crisis roiled energy, metals and agricultural markets. Crude oil fell by 14 per cent on the month, copper by seven per cent and sugar by six per cent. Markets in May were focused on the euro zone debt crisis, which began with worries over Greece's finances and entered a new phase on Friday with a credit ratings downgrade for Spain.
Gold rose about three per cent on the month for its best showing since February, as risk-averse investors piled into metal which is viewed as a safe bet during times of financial and political trouble.
The 19-commodity Reuters-Jefferies CRB index finished being down 8.3 per cent for May — its biggest monthly decline since November 2008.
"The fundamental problems that are going on have not gotten away or changed at all (last) week," said Sterling Smith, analyst for Country Hedging in St Paul, Minnesota.
"We'd just moved into holiday mode and this served as a reminder to people that there's still trouble out there," Smith said as US markets prepared for a longer weekend because of Monday's Memorial Day holiday.
Edward Meir, analyst for broker MF Global in New York, echoed that view.
"We've seen how fickle sentiment has been over the last few weeks, so we'd rather watch the action from the sidelines for at least another few days," Meir said.
Fitch Ratings downgraded Spain's ratings because of concern that austerity measures would dampen the nation's economic recovery.
That set the euro reeling against the dollar, pushing commodities lower. Reuters data showed the euro was on track for a hefty 7.5 per cent decline against the dollar for May.
An unexpectedly flat reading for US consumer spending in April also prompted doubts in regard to raw materials demand, as did slower-than-expected growth in the activity of US company Midwest Business.
Crude oil's benchmark front-month contract in New York settled the month at $73.97 a barrel, down $12.18, or 14.1 percent from April's close.
U.S. crude hit a year high above $87 a barrel in early May before tumbling several times below the key support level of $70 per barrel.
In copper, the most-active futures contract in New York, July, settled at $3.1045 a lb, down 24.9 cents, or 7.4 percent on the month. London's three-month copper contract settled below $6,900 a tonne, down more than $560 from April's close.
Copper had hit a year high of almost $3.70 per lb in New York and above $8,000 a tonne in mid-April.
U.S. raw rugar futures for July settled at 14.19 cents per lb -- below the 15 cent level that until last month had been a key support.
Raw sugar hit a near 30-year high of 30.40 cents a lb on Feb. 1, before diving on the strength of the dollar and worries about big sugar crops looming in Brazil and India.

Source: Reuters