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Crisis Spreads To Commodities |
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The trickle-down effect of plunging global equities spread further to commodities with gold closing the week at levels below US$732 an ounce on mounting pessimism the recession would be longer and more severe than expected, as moves to inject liquidity were doing little to turn around market sentiment.
Fears of a recession intensified after the US Treasury backed away from using a US$700 billion bailout fund to clean up bank balance sheets of bad mortgage debt, pushing Asian shares to their lowest this month. Weaker commodities prices will certainly leave most mining companies with no option, except to scale down production and in some cases to cease operations.
The effect of the global recession is already being felt in some economies closer home as the latest data from Stats South Africa indicates that the country’s gold output fell 17.7 percent in volume terms, while overall mineral production was down 3.5 percent in September compared to the same month in the previous year.
Meanwhile, base metals on the London Metal Exchange, continued to plummet with copper and nickel prices tumbling to the lowest in more than three years, as global stockpiles climbed to the highest since 2004, adding to evidence a deteriorating global economy is reducing demand for industrial metals. Inventories monitored by the London Metal Exchange jumped 1.7% percent to 270,100 tonnes, the highest since March 2004. The graph shows the sharp decline in nickel and copper prices since July 2008 on the international market.
As for oil, Brent crude oil prices opened the week at levels around US$58.70 per barrel, supported by Saudi Arabia's plans to cut December supplies to Asia. Saudi Arabia, the world's top oil exporter, has told refiners in Asia it would cut December supplies by five percent, providing the most visible evidence yet that it is adhering to OPEC's agreement last month to reduce output.
As the week progressed, Brent crude oil weakened on each day to finish the week at levels just above US$50 per barrel as a firmer dollar and renewed gloom over the global economy wiped away the brief euphoria that greeted Beijing's US$600 billion stimulus plan. The release of data which showed that Germany’s economy, Europe's largest economy, contracted more than economists expected in the third quarter, confirming it has entered its worst recession in at least 12 years.
(Courtesy of Motswedi Securities)
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