Bullish commodities wagers plunge in 2012 on Greek impasse

Speculators cut bets on a rally in commodities by the most since November as Greece’s struggle to form a new government and weaker-than-expected industrial output in China erased this year’s gains in raw materials.

     Money managers reduced net-long positions across 18 U.S. futures and options by 19 percent to 723,239 contracts in the week ended May 8, the biggest decline since Nov. 22, Commodity Futures Trading Commission data show. The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped 6.5 percent in eight sessions through May 11, the longest slide since December 2008.

     The euro plunged to its lowest level in more than three months after inconclusive May 6 elections left Greece at a political impasse, threatening the implementation of austerity pledges and reigniting concerns that the country will have to leave the currency union. More than $1 trillion was wiped from the value of global equities last week as JPMorgan Chase & Co. reported a $2 billion trading loss, adding to speculation that global growth will falter and company earnings will slow.

“The market isn’t believing the global growth story,” said Jeffrey Sherman, who helps manage $34 billion of assets for DoubleLine Capital in Los Angeles. “You have this struggle in Europe, and most economists are forecasting a recession, and that’s dominating headlines.”

The S&P GSCI fell 1.7 percent last week. The MSCI All- Country World Index of equities dropped 2.1 percent, and the dollar rose 1 percent against a basket of six major currencies. Treasuries returned 0.3 percent, a Bank of America Corp. index shows. The GSCI gauge extended losses for a ninth session today, falling as much as 1.8 percent to the lowest level since Dec. 20.

Cotton Tumbles

Eighteen of the materials tracked by the S&P GSCI declined last week. Losses were led by corn, which plunged 6.3 percent, the most since mid-January. Cotton tumbled to a 21-month low on May 11 after a U.S. government report showed global inventories will climb. Gold and silver retreated to four-month lows.

     Gross domestic product in the euro area will drop 0.3 percent this year, the European Commission forecast May 11. Greece will have the deepest contraction, with GDP shrinking 4.7 percent. Fifty-seven percent of investors said at least one country will abandon the euro by year-end, according to the Bloomberg Global Poll published May 10.

Industrial Output

China’s industrial output expanded 9.3 percent in April, the slowest pace since 2009 and missing analysts’ forecasts for growth of 12.2 percent, government data showed May 11. Production at Indian factories, utilities and mines unexpectedly declined 3.5 percent from a year earlier, the Central Statistical Office said May 11. The median of 32 estimates in a Bloomberg survey was for a 1.7 percent gain.

Commodities may rebound because producers of raw materials are unable to keep up with increasing demand, said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland, who oversees about $170 million of assets.

Palladium supply will lag behind demand through at least 2016, UBS AG said on May 11. Barclays Plc is forecasting shortages in copper and tin this year. U.S. soybean stockpiles at the end of August 2013 will be 31 percent lower than a year earlier, the U.S. Department of Agriculture said May 10.

“Commodities remain a good longer-term investment given the backdrop of a dovish central bank and continued unexpected supply disruptions,” Mihir Worah, who manages Pacific Investment Management Co.’s $22 billion Commodity Real Return Strategy Fund from Newport Beach, California, said in an e-mail.

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