September 17, 2012 / 8:58 PM / 5 years ago

COMMODITIES-Big slump as demand worry replaces Fed euphoria

* Investors worry about demand despite Fed, ECB stimulus
    * Data shows 2nd month of declines in NY state factory
activity
    * Crude oil, CRB index lose most in a day since July
    * Soybeans drop by daily limit, sharpest drop in 1-1/2 years

    By Barani Krishnan
    NEW YORK, Sept 17 (Reuters) - Commodity markets tumbled on
Monday, as investors worried about the demand outlook for oil,
metals and grains after weeks of rising prices built on optimism
over economic stimulus in the United States and Europe.
    With technical charts showing many commodity markets in or
near overbought territory, weak regional U.S. manufacturing data
gave commodity traders another reason to sell markets that had
hit multi-month highs. Investors worried that high prices may
hurt demand for commodities even as the Federal Reserve and
European Central Bank take steps to reboot economic growth.
    Oil and copper prices sank between 2 and 3 percent each, and
soybean futures slumped about 4 percent.
    The 19-commodity Thomson Reuters-Jefferies CRB index 
fell 2 percent, posting its biggest one-day loss in 2-1/2
months.
    "The speed and severity of the sell-off in such a short time
across commodity markets illustrates how correlated and fragile
markets can be," said Adam Sarhan at New York's Sarhan Capital.
    Until last week, the CRB had logged seven straight weekly
gains, as investors banked on the Fed's third round of
quantitative easing to push commodity prices higher.
    The Fed said last Thursday it will buy $40 billion worth of
mortgage debt a month until the U.S. jobs market improves,
fueling a run-up in risky assets whose prices had languished for
months on a dim global economic outlook. 
    Even so, some analysts had doubts about whether the rally
would last, as past evidence has shown it takes months, or as
much as a year, for substantive gains to build after a Fed
easing. 
    Crude oil prices fell their most in a day since July, with
London's benchmark Brent crude crashing through technical
support to touch a 5-week bottom below $112 per barrel after
closing down 2 percent officially at $113.79.
    U.S. crude settled down 2.4 percent at $96.62.
    Trading volumes in crude, initially muted due to a Jewish
holiday, spiked as the market headed down. Ten thousand lots of
Brent traded in one minute during the drop, up from 152 lots the
minute before the market's turn.
    Brent crashed through the 200-day moving average before
beginning to recover, prompting some oil traders to seek an
explanation for the abrupt fall. 
    "I've been doing this for 14 years and that's the fastest
move I've ever seen," said John Gretzinger, energy risk manager
at INTL-FCStone in Kansas City. 
    "I think it was too fast to be anything but HFT
(high-frequency trading) or other algos," he said, referring to
trading based on algorithms. "We just don't know right now, but
that's my gut feeling." 
    
    
    
    
    Some pinned the selling on data showing weak factory
activity in New York state, which had a second straight month of
declines in September to a near 3-1/2 year low, according to a
report from the Federal Reserve Bank of New York.
 
    Investors also questioned whether stimulus by the European
Central Bank be enough to end the euro zone debt crisis.
    U.S. copper futures extended losses in after-hours trade,
showing the biggest slump in a day since August.
    The most-active copper contract for December delivery fell
to a session bottom of $3.7270 after settling down 1 percent at
$3.7920.
    Three-month copper on the London Metal Exchange 
closed down 1 percent at $8,302 per tonne.
    U.S. soybean futures tumbled by the daily trading limit,
posting their biggest percentage drop in 1-1/2 years, on selling
sparked by anecdotal accounts of better-than-expected yields in
the drought-ravaged Midwest farm belt.
    "There have been reports of yields being better than
expected during the harvest over the weekend, and farmers were
also selling more corn than expected because they don't want to
store grain that is affected by diseases," said Charlie
Sernatinger, vice-president of sales at ABN AMRO.
    Jeff Hainline, president of Advance Trading, added: "It's
nothing scientific, but these are people we trust."
    Chicago-traded soybeans for November delivery slid 4
percent to $16.69 a bushel and registered the lowest front-month
price since Aug. 20.
    Corn futures also fell 4 percent while wheat 
tumbled 5 percent.
    
 Prices at 4:33 p.m. EDT (2033 GMT)      
                             LAST/      NET    PCT     YTD
                             CLOSE      CHG    CHG     CHG
 US crude                    96.26    -2.74  -2.8%   -2.6%
 Brent crude                113.23    -3.43  -2.9%    5.4%
 Natural gas                 2.865   -0.078  -2.7%   -4.1%
 
 US gold                   1770.60    -2.10  -0.1%   13.0%
 Gold                      1759.50    -9.96  -0.6%   12.5%
 US Copper                  381.00    -4.15  -1.1%   10.9%
 LME Copper                8301.00   -79.00  -0.9%    9.2%
 Dollar                     78.972    0.125   0.2%   -1.5%
 CRB                       314.460   -6.460  -2.0%    3.0%
 
 US corn                    752.50   -33.50  -4.3%   16.4%
 US soybeans               1670.00   -70.00  -4.0%   39.3%
 US wheat                   890.25   -46.25  -4.9%   36.4%
 
 US Coffee                  175.65    -5.45  -3.0%  -23.0%
 US Cocoa                  2584.00   -58.00  -2.2%   22.5%
 US Sugar                    20.03     0.12   0.6%  -13.8%
 
 US silver                  34.298   -0.305  -0.9%   22.9%
 US platinum               1671.60   -41.10  -2.4%   19.0%
 US palladium               688.60   -10.20  -1.5%    4.9%

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