Weak Global Economy, Strong US Dollar, Combined to Give Most Commodity Prices a Pounding

Wednesday, 13 June 2012 15:12

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Europes financial worries continue, with the threat of a disintegration of the Euro as well as other potential disasters looming. That has driven investors to move to the relative safety of the US dollar, strengthening its value.

That is among the reason commodity prices are swooning, as most commodities are priced in dollars across the globe. That combined with general concerns about global economic growth, which has clearly been declining, with recession in much of Europe and slowing growth in former high flyers China and India, both big buyers of many commodities, and commodity prices have been sent tumbling in recent weeks.

The most prominent has been the price of oil, with West Texas Intermediate down into the low $80s this week, down from more than $110 per barrel in February, staying at near that level until near the end of April. It has fallen sharply ever since, down about 27% from the peak, with most of that drop occurring in May, the sharpest monthly overall price drop since the collapse of Lehman Bothers in fall of 2008 and the start of the financial crisis and deep recession.

The price drops have hit nearly every category, including agricultural products and the metals. Corn, copper, lead, cocoa and coffee have all dropped by more than 5% in May. Prices of corn, cocoa, oats, cotton, rubber, coffee, aluminum, silver, zinc and nickel are all more than 20% lower than a year ago at this time.

While cotton prices are down nearly 50% over the last year, they have actually been recovering a bit lately, while copper prices are down by nearly 20% for the year.

Even with this recent drop, however, commodity prices are still generally high by historic standards, and well above levels nearly four years ago, when commodity priced plummeted as the recession started.

(Sourcing and Procurement Article Continues Below)

Source: http://www.scdigest.com/ONTARGET/12-06-13-3.php?CID=5930