Commodity prices drop overall
By Tom Stundza -- Purchasing, 6/14/2006
Investor-dominated commodities like metals and crude oil this week took a price dive as some fund managers began to change their tune on commodity investment as interest rates crept up. The surge in commodities prices recently had made hedge funds more interested in trading metals and oil futures, says Brad Hintz, an equity research analyst at Sanford Bernstein and former treasurer of Morgan Stanley. “You have new hedge fund players in the market who want to take risk, and scared users of commodities who want to hedge risk. Brokers are in a happy position of being in the middle of the two," Hintz says. However, Central banks in Europe, India and South Korea already have raised the cost of borrowing in their nations. U.K. consumer prices in May rose 2.2% from a year earlier after rising 2% in April, the Office for National Statistics has reported, making it more likely the Bank of England will raise rates. Prices paid to U.S. producers in May also rose more than forecast, also stoking inflation concerns. So, “the prospect of higher interest rates in the U.S. has prompted the dollar to rise and speculators to withdraw from commodities,'' Cai Luoyi, analyst at China International Futures (Shanghai) Co., tells the Bloomberg News Service .
Bank and investors’ interest in commodities is still strong and will continue to wreak havoc on commodity markets, say some experts. A recent Reuters report says commodities-related revenues for the biggest global banks grew to more than $7 billion in 2005, from less than $1 billion in 2003, according to financial services consultant Ethan Ravage. Amine Belhadj, global head of commodity derivatives at BNP Paribas in London, said that revenue growth for his bank's commodities business could exceed 20% for the next several years. The French bank plans to add 20 professionals to its team of 120 by year end, and will likely hire next year as well, Belhadj said.
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