Worst raw-material slump since ’08 seen deepening

Industrial Metals

Signs of a rebound in global growth and gains in developing economies will support demand for raw materials, analysts at Societe Generale SA led by Michael Haigh, the head of commodities research in New York, said in a report Nov. 26. Investors have become “excessively pessimistic” on industrial metals because prices are below output costs for some producers, the bank said.

The world economy may expand 2.8% next year, the most since 2011, according to the economist estimates compiled by Bloomberg.

U.S. building permits rose in October to the highest since June 2008, Commerce Department figures released Nov. 26 showed. Four of five investors expect the Federal Reserve to delay a decision to taper stimulus until March or later, according to the latest Bloomberg Global Poll. The U.S. is the world’s biggest consumer of crude oil, and American builders put about 430 pounds (195 kilograms) of copper into the average home.

“There’s less fear about the global economy moving into 2014, and what that does is makes you more positive on commodity demand,” said Catherine Raw, the London-based manager of the BlackRock Commodity Strategies Fund. “The market outlook is one in which commodity prices are more stable and less likely to go down given that better demand environment.”

China Demand

The S&P GSCI more than tripled since the end of 1999, including 11 gains over the past 13 years, setting records in everything from oil to gold to copper. Producers struggled to keep up as China’s economy expanded more than fivefold. That attracted a surge of investment and commodity assets under management totaled $343 billion in September, from $160 billion in 2008, Barclays Plc estimates.

In China, a move away from infrastructure expansion may mean less demand for raw materials, Citigroup said in a report Nov. 18. Expansion in the Asian nation is slowing to 7.6% this year from 7.7% in 2012, according to the mean of 52 economist estimates compiled by Bloomberg. Growth is expected to slow to 7.5% next year and 7.2% in 2015.

Hedge Funds

Hedge funds and other money managers are holding a net-long position of 507,489 futures and options contracts across 18 U.S.-traded commodities, Commodity Futures Trading Commission data show. The wagers slumped 27% since the end of December and compare with a peak of 1.56 million contracts in October 2010. Speculators are net-short, or betting on price declines, for corn, copper, coffee, wheat, soybean oil, natural gas and ultra-low-sulfur diesel.

Gold is headed for its first annual decline in 13 years on mounting speculation that Fed policy makers will reduce the central bank’s $85 billion in monthly bond purchases. Prices fell 36% from a record $1,923.70 an ounce in September 2011 as some investors lost faith in precious metals as a store of value. Global holdings in exchange-traded products backed by gold tumbled 30% this year to the lowest since March 2010, erasing $67.5 billion from the value of the assets.

Bullion prices may drop to $1,045 by the end of next year, Goldman’s Currie said Nov. 20. Futures in New York traded at $1,235.30 at 9:38 a.m.

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