57% Commodity price drop worst since October 2008 – foreshadows slowing growth

June 1, 2010 08:15

In June 2008 the Paris-based OECD said the U.S. would grow at a 1.1 percent rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56 percent annual rate, which was then the lowest level since 1949. Then the world’s largest economy shrank 2.4 percent, the worst contraction since 1946.

By Millie Munshi and Elizabeth Campbell at Bloomberg.com

The biggest slump in commodities since Lehman Brothers Holdings Inc. collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil.

The Journal of Commerce commodity index that includes steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.

Commodities extended their decline today, led by a 2.9 percent slump in crude oil and 3.8 percent drop in copper, as the rate of manufacturing expansion in China and Europe slowed. The pace of growth in a U.S. factory index is also expected to weaken, according to economists’ forecasts before a report scheduled for later today.

“As risk-taking falls, expected growth is reduced,” said Colin P. Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston, who was a commodity analyst at Goldman Sachs Group Inc. and at Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”

While the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next on May 26, investors are dumping holdings at the fastest pace since February.


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