Commodities finished a miserable quarter with a miserable day of trading Tuesday.
Oil, gold, grains copper and iron ore all capped a loss-making three months, with oil taking a real pounding, falling to three year lows in New York.
Bloomberg said its Commodity Index suffered its biggest one day fall for 15 months overnight Tuesday as oil prices plunged to a three year low in New York and gold and copper fell.
In fact compared to shares, commodities have taken the brunt of the damage in recent months as China’s weakness and the stronger US dollar have combined to drop demand and force prices lower.
For a major commodity producing country such as Australia, this weakness is the real story – the prices of shares on the ASX are only the reflection of this sudden and surprising downturn in prices in the three months to September 30.
This is why the Aussie dollar has started falling in recent weeks and why it will continue to weaken for a while yet.
A combination of weakening demand, especially from China, record production (in the case of grains and oil seeds) and the rising US dollar, have combined to push commodity prices lower, especially in the past three months.
The US dollar is rising because the economy is doing better and the chances of a rate rise from the Fed are narrowing.
The big message from the commodities market therefore is that there will be no inflation worries for economies over the rest of this year.
Bloomberg says its Commodity Index is down 12% and the biggest quarterly fall in almost six years, and the slide in commodities is much larger than the 2.7% fall in global shares in the September quarter, whole the US dollar is up nearly 7% in the same time.
Nymex US crude-oil futures fell to their lowest contract settlement level since November 2012, taking the losses for the quarter to 13% the steepest quarterly drop since the June quarter of 2012.
Crude for November delivery fell $US3.41 to settle at $US91.16 a barrel in New York, following reports production from OPEC members had reached the highest level in nearly two years.
That’s along way from June, when worries about Ukraine and the Middle East helped push oil to eight month highs.
In London Brent crude for November settlement slid $US2.53 to $US94.67 a barrel, the lowest close since June 28, 2012, according to Bloomberg data.
Brent prices plunged 16% in the September quarter, again narrowing the premium over West Texas style crude in New York.
The weakness in US oil is understandable – the country will shortly regain the mantle of the world’s biggest oil producer as output from fracking and other new sources rises.
But Brent crude should have responded more to the geopolitical tensions in the Middle East and Ukraine, but it hasn’t (and nor has gold!).
Comex December gold dropped $US7.20 to end at $US1,221.60 an ounce for a monthly loss of 5.9% and the lowest close since December 31.
The rising dollar has done much of the damage to gold, which has come despite continuing tensions in Ukraine, the Middle East, Asia and parts of Europe.
But it has been an even tougher quarter (and month) for silver, with the metal losing 12.4% of its value to be down 11.9% for the year so far. Silver has effectively decoupled from gold.
The Comex December contract dropped around 49 cents to end at $US17.057 an ounce, the lowest close since March 2010.
Base metals also had a tough quarter, in part due to flagging China demand and the rising value of the greenback.
Comex copper futures lost 4.8% in September alone and 6.1% for the quarter.
Among the grains US corn prices lost 12% in September alone to continue their 21 months of weakness. Soybeans and wheat prices also weakened in the quarter.
For Australia though, the big commodity play was iron ore and it lost ground for a third successive quarter.
The benchmark product – iron ore with 62% Fe content delivered northern China dropped 17% in the three months to September 30 to $US78.05 a dry metric tonne.
That follows a 19% in the June quarter and a more modest 13% fall in the first three months of this year.
The latest quarterly fall was steeper than the 11% drop in the Bloomberg Commodity price Index, which doesn’t include iron ore.
The fall in iron ore prices has wrought havoc on the share prices of the big four global miners in 2014.
Rio Tinto shares are down 13%, BHP shares have lost 11%, Vale in brazil has seen its shares lump 29% and Fortescue shares have shed 40%.
