Commodities Jump to 6-Week High as Economic Growth Spurs Demand

Tuesday, 04 August 2009

Commodities jumped to a six-week high, led by grains and metals, as signs the global recession is easing and a drop in the dollar bolstered expectations for demand. The Standard & Poor’s GSCI Index of 24 commodities rose as much as 3.3 percent, extending six straight monthly gains in the measure. Copper climbed to the highest in 10 months, soybeans advanced to more than $10 a bushel for the first time in a month and nickel rose to its most expensive since September.

China’s manufacturing expanded in July, while a contraction in European factory output slowed for a fifth month, reports today showed. Spending on U.S. construction projects unexpectedly rose in June, a Commerce Department report today showed. In 2008, the GSCI fell 43 percent, the most since at least 1971, as recessions hit the U.S., Europe and Japan.“Our economists expect a moderate acceleration in economic growth going forward in the next few quarters and this should be supportive for demand for commodities,” said Eliane Tanner, an analyst at Credit Suisse Group AG in Zurich.

China’s manufacturing growth may be shifting to housing “and this is of course positive for base metals” such as copper.The GSCI index gained 3.3 percent to 472.413 by 3:17 p.m. London time. Earlier it rose to 472.541, the highest since June 16. The measure advanced 1.6 percent in July. Assets managed against the GSCI were about $55 billion by the end of July, according to an e-mail today from Michael McGlone, director of commodity indexing at Standard & Poor’s in New York.Copper AdvancesCopper for delivery in three months on the London Metal Exchange rose as much as 5.1 percent to $6,008.75 a metric ton.

The price is up 96 percent this year. Nickel climbed as much as 4.7 percent to $18,800 a ton, the highest since Sept. 15. Nickel is up 61 percent this year.“Chinese industrialization is coming back again,” said Brock Salier, an analyst at Ambrian Partners Ltd. in London. “Underlying fundamentals are still strong.”Gold for immediate delivery increased as much as 0.7 percent to $961.08 an ounce as the dollar’s decline spurred demand for the metal as an alternative investment.

The dollar fell for a third day against the euro.“Where the U.S. dollar might well have been the haven currency to which capital fled during times of duress, it is now instead the currency from which capital flees,” economist Dennis Gartman wrote in his daily Gartman Letter today. “Clearly the weak dollar is a benefit” to grains, he wrote.Soybeans GainSoybeans for November delivery advanced to $10.33 a bushel on the Chicago Board of Trade, the highest since June 19. Corn for December delivery climbed as much as 3.9 percent to $3.63 a bushel.

Both grains may rise this week on speculation the coldest July in more than 100 years in parts of the U.S. Midwest delayed crop development, the latest Bloomberg survey showed.Copper and gold will rise the most among commodities by the end of the third quarter of 2010, as construction buoys copper demand and a drop in the dollar supports gold, Tanner said.

Copper for delivery in three months will rise to $6,500 or $6,700 a ton by then and gold for immediate delivery will be at $1,100 to $1,200 an ounce, she said.“As long as markets bet on a rebound in global economies, the dollar should remain on a weak tone,” said Jerry Yoshikoshi, a senior economist with Sumitomo Mitsui Banking Corp. in Singapore. “This environment, which is positive for commodities, will last at least for the coming weeks.”Commodities OutlookCommodity prices may rise further in 2010 as the global recession abates, Nouriel Roubini, the New York University economist who predicted the financial crisis, said today.

Crude oil advanced to $71.82 a barrel in New York, its highest since July 1. Oil may gain more than other commodities on a rebound in demand, and will average $70 to $75 a barrel next year, Roubini said. In 2009, the average so far is $53.71.“Optimistic” signs in the oil market may help lift prices to $80 a barrel by the end of this year, Iran’s OPEC Governor Mohammad Ali Khatibi said yesterday, the Shana news agency reported.White, or refined, sugar for October delivery climbed as much as 2.9 percent to $505.90 a ton, the highest since at least January 1989. “Fundamentally, the market is in short supply and prices will be supported,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt.

Source: Bloomberg