Commodities take hit from China, EU slowdown

New York: Speculators raised bullish bets on commodities before signs of Europe's deepening debt crisis and slowing Chinese growth drove prices lower for a fourth consecutive week, the longest slump since September.

Money managers boosted net-long positions across 18 US futures and options by 9.5 per cent to 675,362 contracts in the week ended May 22, government data show.

The Standard & Poor's GSCI Spot Index of 24 raw materials reached a five-month low on May 23.

A gauge of net positions for 11 US farm goods surged 21 per cent, the most since February, before agriculture prices tracked by S&P posted the biggest weekly loss in eight months.

The euro dropped to the lowest since July 2010 on May 25 after Catalonia's president repeated his call for Spain's central government to help regions access funding and S&P cut the credit ratings for five of the country's banks.

China's biggest lenders may fall short of loan targets for the first time in at least seven years, three bank officials said, and the nation's State Council refrained from backing Premier Wen Jiabao's push to expand credit.

"It's bit a surprising to see so much on the long side, because the trend is down in commodities," said Walter ‘Bucky' Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. "We're probably not going to see an extended rally until we get some type of monetary easing. Buying now is an aggressive move. You're betting on a short-term pop from some sort of resolution in Europe."

The S&P GSCI index fell 1.4 per cent last week and is down 9.4 per cent in May, heading for the biggest mostly loss since September. The S&P agriculture gauge tumbled 4.8 per cent last week. The MSCI All-Country World Index of equities rose 0.7 per cent, and Treasures slid 0.2 per cent, a Bank of America Corp. index shows.

Dollar rally

The dollar rose 1.4 per cent against a basket of six currencies, rallying for a fourth week.

Twenty of the 24 raw materials tracked by S&P dropped last week. Corn tumbled 9 per cent, the most in a year, and cocoa slumped 7.2 per cent, the biggest loss in 2012. Natural gas fell 2.7 per cent Friday. Europe's crisis risks deepening, damaging the world economy, the Paris-based Organisation for Economic Cooperation and Development said in a report May 22.

China's Wen, in comments posted on the government's website May 20, said the nation should put "stabilising growth in a more important position" and increase lending to support construction. More "aggressive" stimulus measures will spur Chinese economic expansion and boost copper prices in the second half of the year, Morgan Stanley analysts led by New York-based Hussein Allidina said in a report May 21.

Copper inventories monitored by Shanghai's exchange fell for a seventh straight week to the lowest since January. China is the world's biggest consumer of industrial metals. Novelis Inc., the top global producer of rolled aluminum, said last week that doubling its output capacity may not be enough to meet rising demand from car makers.

"Where investors struggle at the moment is that they can see in the medium- to long-term it's still a bull story," said Jonathan Whitehead, the global head of commodities markets at Societe Generale.

"Most of the reasons why commodities spent the 2000s going up are still there — growing demand and increasing supply issues."

Investors pulled $1.18 billion from commodity funds in the week ended May 23, the fifth consecutive drop and the most this year, according to Brad Durham, a managing director at Cambridge, Massachusetts-based EPFR Global, which tracks money flows.