The Wall Street Journal-20080117-Demand Worry Hurts Oil- Gold
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Demand Worry Hurts Oil, Gold
Several key commodity markets fell on concerns that an economic slowdown could translate into weakening demand for raw materials.
Aversion to risky investments, after losses in global stock markets, and a strengthening dollar also contributed to lower prices for energy, gold and some crops.
The Continuous Commodity Index fell 5.59 points to 489.34. The Goldman Sachs Index lost 8.216 points to 596.730, and the Dow Jones- AIG Commodity Index fell 2.39 points to 187.642.
"The unifying theme is market investors are worried the U.S. economy is slowing," said Bart Melek, global commodity strategist with BMO Capital Markets. "And because of the U.S.'s size, that means the rest of the world will suffer a little bit, although I'm not saying there is going to be de facto huge contagion and the rest of the world will collapse. But at the margins, it will be slower."
Worries about the economy crimping commodity demand is reflected by recent falls in stock markets, said Dave Rinehimer, director of futures research at Citigroup Global Markets. The recovery in the dollar also may have hurt.
The euro fell as far as $1.4596 from $1.4804 late Tuesday. A stronger dollar can hurt commodities by making them more expensive in other currencies.
Gold was one of the big decliners, with most-active February futures on the Comex division of the New York Mercantile Exchange falling $20.60 to $882 an ounce one day after a contract high of $916.10.
January Comex copper fell 5.85 cents per pound to $3.1615, worried that slowing economic growth could weaken demand. The world's copper deficit is seen shrinking as higher prices have supported production- capacity expansion.
March corn at the Chicago Board of Trade lost 6.5 cents to $5.025 a bushel, and March soybeans fell 24.5 cents to $12.77. Grains were hit by news that China decided to implement price controls on essential agricultural commodities in an effort to keep prices from spiraling out of control.
The petroleum futures complex sagged after U.S. government data showed that crude-oil inventories last week rose unexpectedly for the first time in nine weeks. Light, sweet crude for February delivery settled $1.06, or 1.2%, lower at $90.84 a barrel. Just two weeks ago, crude futures hit an all-time peak of $100.09. Yesterday, the February benchmark gasoline contract ended 3.09 cents lower at $2.2783 a gallon.
Mr. Melek said he eventually looks for commodities to bounce, particularly as Federal Reserve rate cuts ignite the economy.
"Even if commodities do trade lower a little bit -- big deal, they're still at historical highs," he said. "That doesn't negate a long-term bull market for commodities. It just says there's going to be a correction rather than a bona-fide reversal."
Brazilian Sugar Firm Sees
Trading Activities Curbed
ICE Futures U.S. announced it would curb trading activities at the exchange by Fluxo-Cane Overseas Ltd., a Brazilian sugar-ethanol producer. The firm, which is viewed as a hedger at the exchange, attracted suspicion because of heavy ICE sugar futures and options trading since early 2007 that appeared to be partly speculative in nature, floor brokers said. Producers aren't subject to position limits in ICE world sugar if they can prove their activity is hedging linked to physical business. ICE Futures U.S. said yesterday that only clearing members of ICE Clear U.S. are allowed to take orders for sugar futures and options from Fluxo-Cane, effective immediately. New York traders estimated that Fluxo held a big short position in futures when yesterday's warning was issued, but said it remains unclear if the firm is net long or short in ICE sugar futures and options combined. Longs are usually in expectation of higher prices, while shorts anticipate lower prices. March sugar prices rose 0.30 cent to 11.77 cents a pound, bucking the lower trend across commodities.
-- Susan Buchanan
