Crude Oil, Copper, Sugar Decline as Turmoil May Reduce Demand

By Claudia Carpenter

Sept. 16 (Bloomberg) -- Crude oil, copper and sugar declined on concern turmoil in financial markets will slow global economic growth and reduce demand for raw materials.

Oil fell as much as 4.4 percent and copper dropped to a seven-month low after American International Group Inc.'s credit ratings were cut, threatening efforts to keep the insurer afloat one day after Lehman Brothers Holdings Inc. filed for bankruptcy. Stocks in China, the world's biggest metals buyer, fell to the lowest since December 2006.

``This is part and parcel of the whole global slowdown that's I think migrating through the U.S. to western Europe and particularly into emerging markets,'' Michael Aronstein, president of New York-based Marketfield Asset Management, said in a phone interview from Rye, New York. ``The emerging market demand story has been the fundamental case for commodities.''

The Standard & Poor's GSCI Index slumped 3.3 percent, extending its decline to 33 percent since reaching an all-time high in July. The UBS Bloomberg CMCI index of 26 raw materials has fallen 24 percent from its record.

Crude oil dropped $3.55, or 3.7 percent, to $92.16 a barrel as of 12:20 p.m. London time on the New York Mercantile Exchange. Earlier, the price declined to $91.54, the lowest since Feb. 11. Oil has dropped 37 percent from a record $147.27 on July 11.

Copper for delivery in three months on the London Metal Exchange declined as much as 3 percent to $6,720 a metric ton, the lowest since Jan. 22. The contract was at $6,805 a ton as of 12:21 p.m. in London.

More to Come

``The fear is that the sharp deterioration of the banking crisis in the U.S. will spread to the real economy and demand for oil,'' said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. ``There's a good possibility prices will fall further before they stabilize.''

AIG, the biggest U.S. insurer ranked by assets, had its credit ratings cut three levels by Standard & Poor's and two grades by Moody's Investors Service. Shares of the New York-based company plunged 61 percent in New York Stock Exchange composite trading yesterday.

The Federal Open Market Committee meets in Washington today amid a crisis atmosphere triggered by the collapse of Lehman with $613 billion of debt. While policy makers haven't signaled a cut and few economists predict one today, futures traders put the odds of a reduction at 68 percent, up from 12 percent at the end of last week.

``The Fed has made a lot of credit available, but no one wants to use it because there's still fear that whoever you lend it to is going to go bankrupt,'' said Dan North, chief economist of credit insurer Euler Hermes, a unit of Allianz SE, in Owings Mills, Maryland.

Sugar, Corn

Sugar slid for a second day in London as investor sales overwhelmed increased purchases of the sweetener by processors. White, or refined, sugar for December delivery dropped $8.40, or 2.2 percent, to $371.50 a ton on the Liffe exchange. The contract declined 1.6 percent yesterday.

Corn and soybeans fell for a second day and wheat dropped. Since reaching records this year, corn has tumbled 31 percent and soybeans are down 29 percent.

``The weakness in grains and soybeans prices today can be put down to the collapsing price of oil and, in the wake of renewed turmoil in financial markets, deteriorating global demand prospects for many commodities,'' said Toby Hassall, an analyst at Commodity Warrants Australia in Sydney.

Corn futures for December delivery fell 12.5 cents, or 2.2 percent, to $5.495 a bushel on the Chicago Board of Trade, after earlier dropping to $5.4375.

Soybean futures for November delivery fell 19.5 cents, or 1.7 percent, to $11.595 a bushel. Wheat for December delivery declined 9.5 cents, or 1.3 percent, to $7.175 a bushel.

Jean-Louis Kayitenkore
Procurement Consultant
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East Africa
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