RAW MATERIALS: OIL,COPPER,LEAD DROP

Oil, Copper Lead Drop in Commodities to Lowest Since June 2002

By Millie Munshi

Feb. 17 (Bloomberg) -- Commodities plunged to their lowest level since June 2002, led by energy and industrial metals, on mounting signs the global recession is deepening and that demand for raw materials will decline further.

The Reuters/Jefferies CRB Index of 19 prices dropped for the sixth straight day, the longest slump since December. The index touched 206.27, the lowest since June 26, 2002, and has slipped 10 percent this year. Crude oil fell as much as 7.4 percent today, and copper declined as much as 6.7 percent.

Manufacturing in New York contracted in February at the fastest pace on record, and Japan’s economy shrank in the fourth quarter at an annualized rate of 12.7 percent, the most severe contraction since 1974, government reports showed today. In 2008, the CRB index fell 36 percent, the most since its debut five decades ago, as recessions hit the U.S., Europe and Japan.

“When the economic numbers started coming out this morning, whatever hope was left in most commodity markets got pretty well deflated,” said Peter Sorrentino, who helps manage $15.5 billion at Huntington Asset Management in Cincinnati. “People are waiting to see the economy begin to pick up, which won’t happen until late this year. Until then, people will continue trading on emotion.”

The CRB index dropped 6.62, or 3.1 percent, to 206.52 at 11 a.m. New York time. The measure, which also includes the prices of crops and precious metals, declined 4 percent in January, the seventh straight monthly slide.”

Credit Losses, Stimulus Plan

Governments worldwide are trying to shore up economies saddled with more than $1 trillion in credit losses. President Barack Obama is scheduled today to sign a $787 billion stimulus plan to boost the U.S. economy. The plan won’t be enough to revive growth and boost demand for industrial commodities, said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management.

Crude oil for March delivery fell $2.79, or 7.4 percent, to $34.72 a barrel on the New York Mercantile Exchange, after earlier touching $34.69. Prices are down 20 percent this year.

“The overwhelming focus of the market is the macroeconomic situation, not specific items about oil, which was the case in the past,” said Michael Fitzpatrick, vice president for energy at MF Global Ltd. in New York. “The market-directional cues will come from the economy for quite a while.”

Gold Rallies

Precious metals were the lone commodity gainers. Gold jumped to the highest price since July as equity markets plunged and on speculation that low interest rates and government spending will devalue currencies, boosting the appeal of bullion as an alternative. Silver and platinum also rose.

“People will continue to go for the precious metals now as the safe haven,” said Groenwegen of Gold Arrow. “This is the environment that is good for gold.”

Copper prices dropped to the lowest price since Feb. 3 in New York. Soybeans tumbled as much as 5.8 percent on the Chicago Board of Trade, and natural gas lost as much as 5.9 percent on the Nymex.

“There’s a view in the markets that the stimulus plan as it stands right now is not going to work,” said Tom Hartmann, a commodity analyst at AltaVest Worldwide Trading Inc. in Mission Viejo, California. “We’re definitely seeing deflation in the physical commodities. About the only thing up today is gold and the bond market. Everything else is red.”

To contact the reporter on this story: Millie Munshi in New York at mmunshi@bloomberg.net