Worst commodity returns since 1987 spawned by virus sell-off

New York stock exchange (Credit: BBC)

Returns from commodities have plunged to the lowest since 1987 on fears that the fast-spreading coronavirus will crush demand for raw materials, fuel and food across the globe.

The Bloomberg Commodity Index was already headed lower due to rising supplies and global trade wars even before the outbreak. Now, the spread of the virus is exacerbating its decline. The gauge slid for a fifth session Friday, taking its weekly loss to 6.6% in the worst performance since September 2011.

While the index posted significantly larger declines in the midst of the 2008 financial crisis, the coronavirus is dragging it on an outright basis to levels even lower than it hit at the time.

Almost no commodity has been spared, with global benchmark Brent crude sliding below $50 a barrel for the first time since December 2018, grain prices heading for a second monthly loss, and even gold — a haven asset — getting hit.

The rout is showing no signs of abating as the virus continues to spread, now more quickly outside of China than within the country where the outbreak began. Major commodity trading houses are keeping employees from going abroad and several events this week at the oil industry’s biggest gathering were canceled. Fear over the economic fallout has savaged markets, sending U.S. equities to a seventh straight loss.

“It has a major impact on demand when public life virtually comes to a standstill,” said Carsten Fritsch, a commodity analyst at Commerzbank AG. “Even gold seems not immune to this at the moment.”

Energy

  • U.S. benchmark West Texas Intermediate oil has plunged 17% this week — the most since December 2008. Futures were at $44.17 a barrel at 10:47 a.m. in New York.
  • Brent crude for May in London fell to as low as $49.19 a barrel, ahead of a crucial meeting next week in Vienna between OPEC and its allies about whether to extend the current deal to curb output and keep prices stabilized.
  • Saudi Arabia wants the Organization of Petroleum Exporting Countries and its allies to agree to collective production cuts of an additional 1 million barrels a day.
  • Natural gas futures fell 3.5% to a fresh four-year low as forecasts show unusually mild weather spreading across the U.S. east in the first two weeks of March.

Metals

  • Spot gold fell as much as 4.5% to $1,571.51 an ounce, set for a weekly loss. Standard Chartered Bank said the drop in bullion may be driven by investors selling the metal to cover margin calls in tumbling equity markets, although it was positive on the outlook longer term as the U.S. Federal Reserve will ease interest rates.
  • Base metals are heading for a second monthly drop with zinc and aluminum hitting their lowest levels in more than three years.
  • LME copper fell as much as 1.5% to $5,533 a ton, with inventories in China expanding to the highest levels in almost three years, indicating slumping demand.
  • Mining shares continued to tumble. The Bloomberg World Mining Index posted the steepest intraday loss since 2016, and Rio Tinto Group, BHP Group and Glencore Plc all declined.

(By Pratish Narayanan)

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