Crude Oil, Gold, Copper Lead Decline in Commodities in London

By Chanyaporn Chanjaroen

Sept. 2 (Bloomberg) -- Crude oil led a decline in commodities as Hurricane Gustav spared the U.S. Gulf states the destruction caused by Katrina and Rita in 2005.

Oil slid to a five-month low in New York and gasoline dropped 13 percent, easing concern that inflation will choke global economic growth and pushing copper, gold and soybeans lower. The dollar's rally to close to a seven-month high against the euro also undermined commodities priced in the U.S. currency.

``Oil is the driver of today's declines in commodities, reflecting the lack of appetite from investors,'' Frederic Lasserre, head of commodities research at Societe Generale, said today by phone from Paris.

The S&P GSCI index of 24 commodity futures, down as much as 7 percent in two days, has fallen more than 25 percent from its July 3 all-time high. Lower raw-materials prices may help 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.

``We peaked out,'' said Marc Faber, who forecast in June that commodities would start to fall. ``We'll have to see whether it's a short-term peak or a long-term peak.''

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.

Any slowdown in consumption in the U.S., the world's largest user of oil, would hurt manufacturing countries that rely on exports to power their emerging economies, Faber said today from Bangkok in a Blooomberg Television interview. The U.S. is second to China in terms of industrial-metals consumption.

Crude oil for October delivery fell as low as $105.46 a barrel on the New York Mercantile Exchange, 8.7 percent less than on Aug. 29. Natural gas for October delivery dropped 8 percent to $7.308 per million British thermal units.

Gulf Inspections

Gasoline futures slumped as low as $2.6082 a gallon, the lowest since April 1, and traded at $2.6690 as of 2:25 p.m. London time.

Today's U.S. trading is combined with yesterday's for settlement purposes because of the Labor Day holiday.

Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached. All of the area's 1.3 million barrels a day of oil and 7.06 billion cubic feet of gas, 95 percent of the total, was shut. Royal Dutch Shell Plc, Total SA and ConocoPhillips said they were inspecting offshore U.S. Gulf platforms today.

``There have been specific things to energy and oil bringing prices lower but they have also been caught up in the general demand destruction story, as the U.S. virus spreads globally,'' said Michael Lewis, analyst at Deutsche Bank in London.

`Vulnerable' Downside

Gold for immediate delivery fell as much as $26.46, or 3.2 percent, to $791.24 an ounce, the biggest decline since Aug. 15. Gold dropped as lower oil prices diminished the appeal of the metal as a hedge against inflation.

The precious metal, which also tends to weaken when the dollar strengthens against the euro, has lost 23 percent from a record $1,032.70 an ounce traded March 17. A decline of more than 20 percent is the common definition of a bear market.

Most commodities are priced in dollars and some investors buy them as a hedge against further weakness in the U.S. currency.

``In the short term, gold's direction will be determined by the moves in crude oil and -- barring currently unapparent damage to Gulf of Mexico production facilities or local refining operations -- the downside appears vulnerable,'' John Reade, the head of metals strategy at UBS AG in London, wrote in a report.

On the London Metal Exchange, copper for delivery in three month fell as much as 2.4 percent to $7,128 a metric ton, the lowest intraday price since Aug. 12. Stockpiles of the metal tracked by the bourse rose 3.5 percent to 179,800 tons, the highest since Jan. 21, indicating slower demand growth.

Supply Speculation

Zinc dropped for a second day on speculation supplies from mines will expand faster than demand into next year. The metal dropped $35, or 2 percent, to $1,745 a ton.

Yunnan Chihong Zinc & Germanium Co., China's fifth-biggest zinc producer, said it wasn't affected by the Aug. 30 earthquake in Sichuan province and Nyrstar NV, the world's largest zinc producer, said its U.S. smelter in Tennessee is unaffected by Hurricane Gustav.

``The main problem with zinc is a perception of oversupply,'' said Dan Smith, a metals analyst at Standard Chartered Plc in London.

Corn for December delivery fell as much as 30 cents, or 5.1 percent, to $5.55 a bushel, the lowest since Aug. 18, in after- hours electronic trading on the Chicago Board of Trade. Soybeans also slumped.

``The sharp drop in crude prices is the driving factor behind the weakness in grains markets today,'' Toby Hassall, an analyst at Commodity Warrants Australia in Sydney, said by e- mail. ``The fear premium that had been built into crude prices was hastily wiped away.''

Cocoa for December delivery, the most actively traded contract, fell as much as 61 pounds, or 3.8 percent, to $1,557 pounds ($2,771) a ton on the Liffe exchange in London.

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