Commodities fell to a 12-year low on concern that the global surplus in crude oil will continue, while slowing economic growth in China and Europe means less demand for raw materials.
The Bloomberg Commodity Index of 22 energy, agriculture and metal prices dropped as much as 1.6% to 101.95, the lowest since November 2002. In 2014, the gauge declined 17%, the most since the global financial crisis in 2008. The measure rose to a record in July 2008, more than doubling from the start of 2000.
A rout in energy prices has led the declines for raw materials, with oil dropping to the lowest in more than five years and Goldman Sachs Group Inc. forecasting more declines. Supply gluts are emerging in grains, helping to keep food inflation in check, while a slowdown in global manufacturing hurts demand for metals.
“The European economies, as well as China, are not as vibrant as they once have been,” Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel, Nicolaus & Co., which oversees about $170 billion, said in a telephone interview. “That will affect the demand curve for all commodities. In the first half of 2015, there will be continued downward pressure in the commodity index as global growth decelerates and the dollar strengthens.”
The highest U.S. petroleum output in more than three decades helped send oil prices into a bear market, while a strengthening dollar and slowing growth outside the U.S. eroded demand for raw materials. The commodity index has fallen since 2011, paring gains from the first decade of the 2000s known as a super cycle, when demand from China soared. Citigroup Inc. and Goldman have said that era of rising prices is over.
“We have a major problem when it comes to growth,” Naeem Aslam, chief market analyst at Ava Capital Markets Ltd. in Dublin, said in an e-mail on Jan. 2. “Traders do not have their appetite for commodities.”
Commodity assets under management dropped to $276 billion in November, the lowest since 2010, according to Barclays Plc.
Brent crude for February settlement tumbled 4.7% to $47.74 a barrel on the London-based ICE Futures Europe exchange. Earlier, the price touched $47.18, the lowest since March 2009. Futures slumped 48% last year.
Saudi Arabia, which has steered the Organization of Petroleum Exporting Countries to resist cutting output, has said it’s confident that prices will rebound. Brent, gasoline, heating oil and natural gas posted some of the biggest declines last year among components in the Bloomberg commodity gauge.
The drop in raw-material prices has been compounded by the dollar’s surge to a nine-year high against a basket of six currencies amid speculation the Federal Reserve will raise borrowing costs for the first time since 2006.
As the Fed reduces stimulus measures, other central banks have pledged to do more to bolster economies. Since last year, the European Central Bank has cut its deposit rate below zeropercent and started purchasing asset-backed securities and covered bonds. China’s economic expansion of 7% this year will be the least since 1990, according to economist estimates compiled by Bloomberg.
On the London Metal Exchange, copper dropped below $6,000 a metric ton for the first time in more than five years, partly on speculation that demand will ebb in China, the world’s top consumer of industrial metals.
A gauge of the six main metals traded in London fell to the lowest since June 2010. Copper has decline 18% in the past 12 months, while lead and tin have dropped.
“Oversupply, weaker-than-expected demand particularly in China and the strength of the dollar are the three key pillars that have been behind much of the decline in commodity prices,” Nic Brown, head of commodity research at Natixis SA in London, said in a telephone interview on Jan. 2.
Global wheat, corn and soybean production have climbed to records this season.
Today, soybean futures in Chicago tumbled the most since June after the government said inventories expanded in the U.S., the world’s biggest grower. Through Jan 9, the oilseed dropped 17% in the past 12 months, while corn and wheat eased.
Gold is trading 9.2% above a four-year low set in November and advanced 1.5% to $1,234.,30 an ounce today in New York. Rising interest rates and a stronger dollar can cut the metal’s allure because bullion generally offers investors returns only through price gains.
To contact the reporters on this story: Laura Clarke in London at [email protected]; Luzi Ann Javier in New York at [email protected] To contact the editors responsible for this story: Millie Munshi at [email protected]