Commodities Trade Near Five-Month Low After Oil-Led Decline

By Gavin Evans

Sept. 3 (Bloomberg) -- Commodities traded near their lowest in five months, led by oil, on concern that slowing global economic growth may crimp demand and as U.S. rigs and refineries escaped major damage from Hurricane Gustav.

Natural gas fell today in New York, taking its five-day decline to 17 percent, while crude oil was little changed after reaching a five-month low yesterday. The Standard & Poor's GSCI gauge and the Reuters/Jefferies CRB Index slumped the most since March 19. The dollar gained for a fifth day, eroding the appeal of raw materials priced in the U.S. currency.

Spiraling food and energy prices prompted the World Bank in June to forecast global growth would slow to 2.7 percent this year from 3.7 percent in 2007. Australia's economic expansion slowed to the weakest pace in two years in the second quarter, a report showed today, while manufacturing in China contracted for a second month in August, according to Sept. 1 figures.

``Commodity prices being stronger for longer never meant that they'd only ever rise,'' said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. Global growth ``is not as strong as it was, but it's certainly not especially weak'' and calling the end of the commodity cycle would be ``premature'', he said in a telephone interview.

The S&P GSCI measure of 24 commodities dropped 31, or 4.4 percent, to 677.06 yesterday. The gauge dropped 6.9 percent in August and plunged 12 percent in July, after surging 41 percent in the first half. The CRB index fell 3.4 percent to 378.55.

Gas, Oil

Natural gas and oil extended their declines today as oil companies and refiners inspected platforms and plants for hurricane damage.

An aerial survey of oil and natural-gas platforms and rigs in the Gulf of Mexico on Sept. 1 found no structural damage and no oil spills. As much as 20 percent of offshore oil and gas production may return to operation as early as this weekend, Louisiana Governor Bobby Jindal said Sept. 1.

``Gustav was much tamer than it might have been, and that led to a drop in oil, which triggered a commodity sell-off,'' William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey, said yesterday. ``Commodities have fallen out of fashion with investors.''

The S&P GSCI is at its lowest since April 3 and has fallen 24 percent from a record on July 3. Lower raw-material prices may ease inflation, which accelerated to more than a 17-year high in the U.S. in July and a 16-year high in the euro zone.

`Contagion'

Investors are concerned that the slowdown in economic growth in developed countries may spread to emerging markets as a form of ``contagion,'' Allen Sheals, executive director and senior commodities structurer at UBS AG, said today by phone. ``That's probably the risk.''

Stocks of commodity-related companies declined in Asia and Australia on concern lower metals and grains prices may hurt profits. Noble Group Ltd., a Hong Kong-based supplier of coal to soybeans, fell as much as 5.9 percent to S$1.77 in Singapore trading, and was at S$1.78 at 12:20 p.m. local time.

Newcrest Mining Ltd., Australia's largest gold-mining company, fell as much as 7.6 percent to A$22.95 and traded at A$237 at 2:20 p.m. Sydney time on the Australian stock exchange, its biggest fall since Aug. 11. Olam International Ltd., which ships cotton, nuts and spices, dropped as much as 7.1 percent to S$1.97 in Singapore, and was last at S$1.99.

`Underlying Demand'

``While commodities have been a safe haven amid ongoing credit problems in the U.S. over the past year, ultimately they would still be impacted by changes in underlying demand,'' Sean Darby, head of regional strategy at Nomura Holdings Inc., said in a report dated today.

Natural-gas for October delivery fell 10.1 cents, or 1.4 percent, to $7.16 per million British thermal units on the New York Mercantile Exchange at 12:20 p.m. Singapore time. The contract fell 8.6 percent to $7.258, the past two days, the biggest drop since Aug. 20, 2007. Floor trading was closed Sept. 1 for the U.S. Labor Day holiday and the two sessions were combined for settlement purposes.

Crude oil for October delivery dropped 65 cents to $109.06 a barrel after falling 5 percent yesterday. Prices touched $105.46, the lowest since April 4, yesterday.

Gold for immediate delivery fell as much as 0.9 percent to $798.27 an ounce in Singapore. The precious metal fell 1.5 percent yesterday.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net