Commodities erased this year's gains after the U.S. Federal Reserve said that the world's biggest economy faces "significant downside risks," boosting speculation raw-material demand will falter.
The 24-member Standard & Poor's GSCI Index dropped as much as 2.8 percent to 620.58, the lowest level since Aug. 10, and a 1.8 percent decline this year. Copper tumbled into a so-called bear market, while crude oil fell to a four-week low and wheat slipped to a 10-week low.
European stocks tumbled as the Federal Reserve signaled "significant downside risks" to the world's largest economy and Moody's Investors Service downgraded three U.S. banks. Fed policy makers said yesterday they will replace much of the short-term debt in their portfolio with longer-term Treasurys in an effort to keep the economy from relapsing into a recession.
"The global growth scenario continues to be clouded, all the commodities were hit," said Michael McCarthy, chief market strategist at CMC Markets Asia Pacific Pty Ltd. in Sydney. "There is a lot of bearishness."
The world economy will expand 4 percent this year and in 2012, the International Monetary Fund said on Sept. 20, cutting forecasts made in June for a 4.3 percent expansion this year and 4.5 percent in 2012.
Manufacturing in China, the world's largest metals user, may shrink for a third month in September, according to a preliminary index of purchasing managers from HSBC Holdings Plc and Markit Economics released today. The initial reading for this month was 49.4 compared with a final 49.9 for August and 49.3 for July. Figures below 50 signal a contraction.
"My fears for a world slowdown are playing out," said David Thurtell, an analyst at Citigroup Inc. in Singapore. "As a barometer of the pace of the world industrial production cycle, the copper price is falling."
Three-month copper on the London Metal Exchange fell as much as 5.3 percent to $7,860.75 a metric ton, the lowest price since Sept. 28. That's 23 percent below the record $10,190 set on Feb. 15, more than the 20 percent drop that's regarded by some investors as signaling a bear market.
Copper may drop to as low as $7,000 as concerns grow about the global economic slowdown, Im Byeong Cheol, an executive at South Korea's Public Procurement Service, said on Sept. 21. The contract hasn't traded below $7,000 since July 2010.
November-delivery oil fell as much as 3.7 percent to $82.75 per barrel, the lowest level since Aug. 22, on the New York Mercantile Exchange. Brent for November fell as much as 2.6 percent to $107.50 on the ICE Futures Europe Exchange.
Wheat for December delivery fell as much as 2.4 percent to $6.51 a bushel on the Chicago Board of Trade, the lowest price since July 12. December-delivery corn lost as much as 2.6 percent to $6.6825 a bushel, while soybeans for November delivery declined as much as 1.9 percent to $12.96 a bushel, the lowest price since Aug. 11.
To contact the reporter on this story: Sungwoo Park in Seoul at [email protected].
To contact the editor responsible for this story: Richard Dobson at [email protected].
More on commodities: