Feb. 28 (Bloomberg) — Commodity prices surged to a 24-year high, extending a rally that began in late 2001, on signs of growing global demand for everything from energy to metals to crops.
The Reuters-CRB index rose as much as 4.54, or 1.5 percent, to 304.77, the highest for the index since February 1981. The index of 17 commodities, including oil, corn, sugar and hogs, has risen 8.4 percent this year after jumping 11 percent last year, 8.9 percent in 2003 and 23 percent in 2002.
Production of some raw materials is failing to keep pace with consumption, just as a drop in the dollar against the euro and yen made commodities priced in the U.S. currency cheaper to import in Europe and Asia. Copper reached a 15-year high, coffee was near a five-year high, and heating oil in New York climbed as a snowstorm approached the U.S. Northeast.
“We’re seeing demand-driven rallies in commodities,” said William O’Neill, a partner at Logic Advisors LLC, a commodity consulting company in Upper Saddle River, New Jersey. “Commodities are back in a big way as an asset class.”
Heating oil for March delivery rose 1.49 cents, or 1 percent, to $1.469 a gallon at 12:45 p.m. on the New York Mercantile Exchange. Prices have climbed 53 percent in the past year.
Cocoa, used to make chocolate, rose 4.6 percent, the biggest fluctuation of any commodity in the index. Coffee jumped 3.5 percent. Natural gas, orange juice, crude oil and corn were lower.
Higher coffee costs led Procter & Gamble Co.’s Folger’s coffee and Altria Group’s Maxwell House to raise retail prices by 28 cents a pound, or 14 percent, in December. Hershey Foods Corp., the largest U.S. chocolate maker, in December, boosted wholesale prices on about half its candy, the second increase in the past two years, because of rising costs, including for cocoa.
The Goldman Sachs Commodity Index, which is more heavily weighted to energy prices, fell 0.17 to 352.84, pulled down after crude oil prices declined. The index has jumped 27 percent in the past year and reached a high last year of 374.89 on Oct. 27, two days after oil reached a record $55.67 a barrel.
The Dow Jones-AIG Commodity Index of 20 raw materials rose 0.771 to 155.917, up 6.5 percent from a year ago.
The dollar fell today against the euro and yen.
“When you see overall dollar weakness, that gives people around the globe the ability to purchase greater quantities of dollar-denominated assets,” said Darren Stoody, who manages the futures trading at Fort Wayne, Indiana-based OmniSource Inc. which processes scrap copper for automakers, builders and electronics companies.
Crude oil prices have climbed 42 percent in the past year as cold weather in the U.S. and Europe boosted demand. The International Energy Agency, which represents oil-consuming countries, has raised its demand forecasts in all but three months since November 2003.
Demand for oil in China, the world’s second-largest user after the U.S., grew 16 percent in 2004 and is projected to rise 6.3 percent this year, the agency said on Feb. 10.
China’s growing demand for copper used in wiring and plumbing has strained supplies from mines and scrap yards. China surpassed the U.S. in 2002 as the world’s largest copper consumer.
Hedge funds and other large speculators have increased their holdings of the metal in the past two weeks as the U.S. currency fell against the euro and yen, helping to keep copper at or close to a 15-year high since Feb. 17.
“The funds are in just about everything,” O’Neill said. “They’re participating in cotton. They’re participating in sugar. They’re participating in coffee. The grains, which have been one of the weakest, have been rallying because of weather concerns in Australia, and South America.”
The dollar earlier today fell to the lowest in almost seven weeks against the euro, heading for the sixth month of declines in the past seven, on speculation Asian central banks will slow purchases of U.S. assets and invest new reserves in other currencies. The dollar fell to $1.3258 per euro, from $1.3244.
Last week the dollar fell the most in six months against the euro and the most in four months versus the yen, after the Bank of Korea said it intended to diversify its currency holdings. The dollar is down 1.7 percent against the euro so far this month and is still up 0.6 percent versus the yen.
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Source: Bloomberg Australia