Oil, Corn, Platinum Drop as Commodities Slump on Slower Economy

By Glenys Sim
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Aug. 5 (Bloomberg) -- Corn tumbled to its lowest in more than four months and crude oil traded near a three-month low amid a decline in commodities on concern that global economic growth may slow, hurting demand.

Platinum dropped to its lowest in more than six months as declining car production cut demand for emission-control devices, its biggest market. The Reuters/Jefferies CRB Index of 19 commodities had its largest daily decline since March yesterday.

``The perception the global economy is slowing is damping demand,'' said Park Sehick, a fund manager at Hanwha Investment Trust Management Co. in Seoul, which manages the equivalent of $1 billion in equities. ``Other commodities will follow oil's example,'' he said in a phone interview today.

Commodity prices measured by the CRB index plunged 10 percent in July, the most in any month since March 1980, when the U.S. economy was in a recession. A worsening global growth outlook and prospects for increased supply sent crude oil, soybeans and gasoline tumbling from records last month.

Energy and raw-materials stocks have fallen into bear markets. A gauge of 117 energy producers in the MSCI World Index dropped 21 percent from its May record. A measure of mining, farm and chemical companies declined 22 percent from its high. A bear market is commonly defined as a slump of 20 percent or more.

Markets are ``increasingly concerned about the outlook for global growth,'' Darren Gibbs, chief economist at Deutsche Bank AG in Auckland, said in a report today. ``The concern is thoroughly understandable.''

Oil, Soybeans, Corn

Crude oil fell as much as 1 percent to $120.21 a barrel as Tropical Storm Edouard will avoid most offshore production facilities in the U.S. Gulf Coast as it approaches Texas.

Soybeans fell 2.2 percent to $12.66 a bushel and corn declined 2.5 percent to $5.4150 a bushel. The CRB index fell 3.4 percent to 401.98 yesterday, which marked the largest slide since March 19. The gauge dropped to the lowest level since May 2, as did the UBS-Bloomberg Constant Maturity Commodity Index.

Platinum fell 1.6 percent to $1,540 an ounce as declining car production and sales raised speculation of reduced demand for emission reduction devices in vehicles, the biggest market.

U.S. auto sales tumbled 13 percent in July, while car production in Germany, Europe's biggest economy, fell 6 percent last month from a year earlier. China's stockpile of unsold new vehicles rose 50 percent to a four-year high in the first half.

Rubber, Palm Oil

Rubber, the main raw material for tires, fell to a two- month low. Palm oil, a cooking oil and alternative fuel, dropped as much as 4.8 percent to 2,750 ringgit ($841) a metric ton, its lowest for more than nine months.

``Speculation had been driving these markets and they were due for a correction as so many prices had gotten overdone,'' said Peter Sorrentino, who helps manage $16.7 billion at Huntington Asset Advisors in Cincinnati. ``There are moderating growth expectations that are going to hurt industrial commodities. Going forward, you have to be very selective.''

The U.S. economy shrank at the end of the 2007 and grew less than forecast in this year's second quarter, signaling that the country is in worse shape than investors had anticipated, the Commerce Department said last week. Manufacturing in China, the world's fastest-growing major economy, contracted in July for the first time since a survey began in 2005.

The CRB posted its best first half in 35 years, gaining 29 percent in the first six months of 2008 as investors stocked up on raw materials as an alternative to stocks and bonds and as a hedge against the weakening dollar.

Commodities are ``at the beginning of a long-term bear market,'' after rallying the past seven years, Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York, said last week.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net