The Hindu Business Line : Crude drops below $90 as commodities fall across the board

Chennai, Oct. 6 “Sky is falling – sell sky!” On Monday, Reuters Metals Insider columnist Andy Home was thanking a London local for digging out this “little market gem”. The week’s beginning did look as if commodities, for which sky was seen as the limit until a couple of months ago, had fallen into a bottomless pit across the board, save gold.

The credit market seizure that forced Lehman Brothers’ go bankrupt and Merrill Lynch’s sale is squeezing speculators, who had driven commodities to record highs, said Bloomberg in a report.

The fall in commodities was led by crude dropping below $90 a barrel. It was quoting at $90.23 a barrel at 8.30 p.m. (IST). Copper, an indicator of housing and power sectors’ progress, fell seven per cent to $5,570 a tonne – a 20-month low. Aluminium dropped to $2,256, nickel to $14,350, zinc to $1,540 and lead to $1,641 a tonne, all near two-year lows.

Also declining were palm oil to $509 a tonne, coffee, sugar, soyabean, cocoa and corn. Further fall is seen in the prices of these commodities as funds are expected to liquidate their positions. There were other commodities such as rubber, which fell to the maximum limit allowed in a day.

Gold was the only saving grace, rising by over four per cent to $871.60 as investors sought a safe haven from the credit crisis.

From its July 3 peak value of $655.4 billion, the value of 19 commodities in the Reuters-Jefferies CRB index has fallen $280.6 billion or 43 per cent. As on October 1, the value had eroded to $374.8 billion with all commodities declining in the third quarter. The index had doubled to a record 473.97 on July 3 from 2001 and is likely to decline 15 per cent this year, Bloomberg quoted analysts. Till now, it has declined nine per cent.

According to Mr Manav Garg, CEO and Founder of EKA Software, which helps corporates manage risks in commodities with its software, the commodities market would be in a “watch and wait” mode for the next couple of weeks.

Though some analysts expect a rebound after the current quarter, slower expansion in the US, China and India is undermining crude oil and other commodities.

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