Weekend Economists Ring in the Old, Wring Out the New: Dec. 30, 2011 to Jan. 2, 2012

[Demeter]

26. Commodities Poised for First Annual Decline Since 2008 on Europe

Last edited Sat Dec 31, 2011, 01:59 PM - Edit history (1)

http://www.bloomberg.com/news/2011-12-30/commodities-poised-for-first-annual-decline-since-2008-on-european-crisis.html

Commodities (SPGSCITR) posted the first annual drop since 2008, paced by declines in cotton, copper and cocoa, on concern that the sovereign-debt crisis in Europe and a cooling Chinese economy will sap demand for raw materials.

The Standard & Poor’s GSCI Total Return Index (SPGSCITR) of commodities fell 0.1 percent to 4,885.3 at 3:50 p.m. in New York, down 1.2 percent for 2011. Cocoa plunged 31 percent in 2011 on signs of expanding supplies from Ivory Coast, the world’s biggest grower. Cotton fell 37 percent this year amid rising output and dwindling demand. Copper, often seen as an indicator of economic activity it is used in construction and automobiles, posted its first loss since 2008.

Economic growth in China, the world’s biggest copper user, will slow to 8.5 percent next year, after growing 10.4 percent in 2010, the Organization for Economic Cooperation and Development projected on Nov. 28. Manufacturing in December contracted for a second month as global growth faltered and Premier Wen Jiabao prolonged a crackdown on speculation in the housing market. Global equity markets have lost $6.3 trillion in value this year as Europe’s debt crisis and slowing economic expansion weighed on investor demand for riskier assets.

“The two biggest drivers have been the global economic environment and the Chinese economy,” said Dan Denbow, a co- fund manager of the $2.1 billion USAA Precious Metals and Minerals Fund in San Antonio. “What happens next year really depends on what happens with global growth. Investors may not be as quick to come back to commodities unless they get a very good feeling about global growth.”