Commodity Returns Plunge by the Most in Years on Virus Sell-Off

(Bloomberg) -- Returns from commodities are plunging on fears that the spreading coronavirus will crush demand for raw materials, fuel and food across the globe.

The Bloomberg Commodity Total Return Index, a measure that takes into account expiry of futures contracts as well as cash collateral invested in U.S. Treasuries, declined has 6.9% this week -- the most since 2011. Another gauge of returns is at the lowest level since 1987.

The outbreak is exacerbating a decline that was already underway due to rising supplies and global trade wars. Almost no commodity is being spared from the rout. Global benchmark Brent crude slid below $50 a barrel for the first time since December 2018, a gauge of grain prices posted a second monthly loss, and even gold -- a haven asset -- was hit.

The carnage is showing no signs of abating as the virus continues to spread, now more quickly outside of China than within the country where the outbreak began. Major commodity trading houses are keeping employees from going abroad and several events this week at the oil industry's biggest gathering were canceled. Fear over the economic fallout has savaged markets, sending U.S. equities to a seventh straight loss.

“It has a major impact on demand when public life virtually comes to a standstill,” said Carsten Fritsch, a commodity analyst at Commerzbank AG. “Even gold seems not immune to this at the moment.”

Energy

• U.S. benchmark West Texas Intermediate oil plunged almost 16% this week -- the most since December 2008. Futures settled at $44.76 a barrel in New York.
• Brent crude for May in London fell to as low as $48.94 a barrel, ahead of a crucial meeting next week in Vienna between OPEC and its allies about whether to extend the current deal to curb output and keep prices stabilized.
• Saudi Arabia wants the Organization of Petroleum Exporting Countries and its allies to agree to collective production cuts of an additional 1 million barrels a day.
• Natural gas futures fell 3.9% as forecasts show unusually mild weather spreading across the U.S. east in the first two weeks of March.

Metals

• Spot gold fell as much as 5% to $1,563.07 an ounce, the biggest intraday loss since 2013. Standard Chartered Bank said the drop in bullion may be driven by investors selling the metal to cover margin calls in tumbling equity markets, although it was positive on the outlook longer term as the U.S. Federal Reserve will ease interest rates.
• Base metals posted their second monthly drop, with nickel sliding 1% on the London Metal Exchange Friday.
• Mining shares continued to tumble. The Bloomberg World Mining Index posted the steepest intraday loss since 2016, and Rio Tinto Group, BHP Group and Glencore Plc all declined.

Agriculture

• In crops, palm oil had its worst week in 11 years in Malaysia.
• Chicago wheat futures are headed for the worst weekly loss since March. News that China's edible oil and animal feed factories are running at pre-virus levels has failed to stoke soybean prices.
• Sugar fell 0.4%, cotton declined 1.6% and cocoa slid 2.7%.

--With assistance from Ann Koh, Atul Prakash, Thomas Biesheuvel, Elena Mazneva, Jake Lloyd-Smith, Megan Durisin, Naureen S. Malik, Yvonne Yue Li and Justina Vasquez.

To contact the reporter on this story: Pratish Narayanan in New York at pnarayanan9@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Pratish Narayanan, Joe Carroll

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