Commodities Head for Worst Month in 52 Years as Economies Slow

By Chanyaporn Chanjaroen and Grant Smith

Oct. 31 (Bloomberg) -- Commodities headed for their worst month since at least 1956 on concern that a slump in global economic growth will sap demand for raw materials.

The Reuters/Jefferies CRB Index of 19 raw materials has plunged 23 percent this month, the steepest decline in at least a half-century. Crude oil is set for a record monthly drop, copper its biggest retreat in two decades and gold its worst performance in 25 years.

``October is at last ending -- the worst month in commodity history,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. ``Investors are expecting lower growth for the longer term and that is putting prices under pressure.''

The world's central banks are cutting borrowing costs as the financial crisis that started with the U.S. housing slump threatens to tip the global economy into recession. UBS AG cut its forecast for global growth next year to 1.3 percent, from 2.2 percent, prompting reduction of as much as 48 percent in its 2009 forecasts for commodities such as copper.

Crude oil for December delivery fell as much as $2.84, or 4.3 percent, to $63.12 a barrel in New York and was at $63.94 a barrel as of 11:28 a.m. in London. The fuel has dropped 36 percent this month, surpassing a record 30 percent plunge in February 1986.

``The outlook for demand remains weak while we wait for economic rescue measures to feed their way through the system,'' said Christopher Bellew, senior broker at Bache Commodities Ltd. in London. ``Even in emerging markets the growth there is likely to be lower than was previously expected.''

Energy Demand

Gross domestic product contracted in the third quarter at the fastest annual pace since 2001, the U.S. Commerce Department said yesterday. The U.S. is the world's biggest energy consumer. Showa Shell Sekiyu K.K., Royal Dutch Shell Plc's Japanese unit, will cut its crude processing by 7 percent during the fourth quarter on falling domestic demand.

On the London Metal Exchange, copper for delivery in three month fell $320, or 7.6 percent, to $3,880 a metric ton, taking this month's loss to 39 percent, the biggest in two decades. The implied volatility of the metal climbed to 90.78 percent this week, the highest since at least 2004. Aluminum fell $57, or 2.8 percent, at $2,003, down 17 percent for October.

The LME index of six industrial metals has dropped 27 percent this month through yesterday, heading for the biggest monthly drop since at least May 2000.

Gold for immediate delivery fell $11.63, or 1.6 percent, to $726.50 an ounce in London. The metal has fallen almost 16 percent this month, the steepest retreat since February 1983, according to data on Bloomberg. The U.S. Dollar Index, which measures the U.S. currency's performance against six counterparts, has risen 7.9 percent this month, the best performance since October 1992.

Dollar Strength

``The dollar is definitely driving the gold market lower,'' Robert Martin, chief executive officer of Dubai-based GTL Trading Ltd., which trades gold and currencies for 4,000 clients, said by phone from Dubai.

Platinum dropped $30.50, or 3.7 percent, to $800 an ounce. The metal, used in car catalysts, has slid 65 percent since trading at a record $2,301.50 on March 4.

Goldenport Holdings Plc, a U.K-listed shipowner, fell by a record amount in London trading after saying trade in commodity shipping has ``virtually halted.''

``Activity in the dry-bulk segment has virtually halted, with minimal trade taking place globally,'' Chief Executive Officer Paris Dragnis said in a statement today. Dry bulk refers mostly to coal, iron ore and grains.

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