The record 39% decline in commodities since July 3 is nowhere near finished, if history is any guide.
The Reuters/Jefferies CRB Index of 19 commodities from coffee to silver would have to drop another 37% to reach the trough of the 2001 recession and 35% for the 1998 slide, when crude bottomed at $US10.35 a barrel. The measure is 28% above its lowest during the economic contraction that ended in November 1982. Copper, after its biggest weekly loss in two decades last week, is still triple 2001 levels.
While tumbling prices of oil, nickel and soybeans already crippled stock markets from Moscow to Sao Paulo and sliced Alcoa Inc.'s profits by 52%, investors say rising stockpiles of copper and slowing energy demand mean prices will continue to fall. The US slowdown will last more than a year and be deeper than any in three decades, according to Harvard University economist Martin Feldstein, a member of the committee that charts American business cycles.
``This downturn is going to make 2001 look like a walk in the park,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd., who sold all his commodity investments in July. ``This is the bursting of a 25-year asset-credit bubble. People have really stopped spending money, everywhere.''
The CRB ended Oct. 10 at 289.89 after losing 11% during the week. The index gained 29% in the first half, the best start ever to a year, before tumbling 25% in the third quarter.
Forecasts slashed
Goldman Sachs Group Inc. of New York cut its 2009 estimate for lead by 17% and copper by 12% on Oct. 1. Zurich-based UBS AG said Oct. 6 nickel will be 32% lower than previously forecast, while platinum will be 50% less than anticipated. Morgan Stanley of New York reduced its 2009 aluminum estimate by 20% three days later and palladium by 45%.
Crude oil at $US77.70 a barrel and copper at $US4,790 a metric ton are at least 46% below their July peaks, signaling an end to record profits for Freeport-McMoRan Copper & Gold Inc., the biggest publicly traded copper producer, and energy producer Exxon Mobil Corp. in Irving, Texas.
Exxon's earnings may fall more than 2% to $US45.9 billion in 2009, the first drop since 2002, according to data compiled by Bloomberg. The company is scheduled to report its next financial results on Oct. 30. New York-based Alcoa said Oct. 7 third-quarter earnings dropped by more than half to $US268 million. Freeport-McMoRan of Phoenix said July 22 that second- quarter profit fell 14% to $US947 million.
