Commodities Tumble, Led by Oil, Copper as Japanese Quake Threatens Demand

Crude oil for April delivery dropped as much as $2.52 to $98.67 a barrel in electronic trading on the New York Mercantile Exchange. Photographer: Chip Chipman/Bloomberg

Commodities fell for a fourth day, led by a 3.3 percent slide in crude oil, as Japan’s biggest earthquake and nuclear crisis spurred concern that demand for raw materials, including some energy products, will shrink.

The Standard & Poor’s GSCI spot index of 24 commodities dropped 2.4 percent, capping the longest losing streak since Aug. 24, to 683.12 at 10:57 a.m. in London as crude futures in New York slid below $100 a barrel and U.S. gasoline lost as much as 4.2 percent. Gold, copper and corn also declined.

“What you’re seeing in Japan is a demand-destructive event,” said Stephen Wood, New York-based chief market strategist for Russell Investment Group. “We saw the supply side to the equation with what’s going on Libya and Egypt and to some extent Bahrain, and now you’re seeing the other side.”

Commodities are retreating after a sixth monthly gain in February as Japan, the world’s third-biggest economy, grapples with the aftermath of the quake, the magnitude of which was revised upward to 9 yesterday from 8.9. A third blast occurred today at the Fukushima Dai-Ichi nuclear plant, and Prime Minister Naoto Kan said the risk of further radiation leaks is rising. The March 11 temblor caused an estimated 10,000 deaths, shutting down factories, power plants and oil refineries.

Crude oil for April delivery dropped as much as $3.38 to $97.81 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.23 at 11:01 a.m. in London. European benchmark Brent crude futures traded 2.9 percent lower at $110.39 on London’s ICE Futures Europe exchange.

Oil Refineries

The earthquake has shut or disrupted production at refineries accounting for at least 29 percent of Japan’s processing ability, cutting demand for crude supplies. The country is the world’s third-largest oil consumer.

U.S. crude futures surged to a 29-month high of $106.95 a barrel in intraday trading March 7 as violence in Libya cut crude production and threatened to spill into the Middle East.

Gasoline futures on Nymex declined as much as 12.4 cents to $2.8361 a gallon, the lowest in more than two weeks.

The production halt at some of Japan’s nuclear plants may boost demand in the country for other fuels, including liquefied natural gas and diesel fuel, which many power stations burn to produce electricity.

Japan will need as much as 10 million metric tons of additional LNG as a result of the quake and its aftermath, said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. A “dramatic” increase in LNG demand was possible if damage to Japanese nuclear facilities proves more severe than he currently expects, Stern told reporters today at a conference in Doha, Qatar. Natural gas futures in the U.S. and U.K. rallied.

Precious Metals

Immediate-delivery gold bullion fell as much as 1.5 percent to $1,404.95 an ounce. Palladium for immediate delivery dropped as much as 3.8 percent to $718 an ounce after losing 1.8 percent yesterday, while platinum decreased as much as 2.2 percent to $1,715.18 an ounce. Cash silver fell as much as 3.8 percent to $34.56 an ounce.

“Gold and other precious metals are coming under pressure as commodities decline across the board,” said Chae Un Soo, a Seoul-based trader at KEB Futures Co. “The decline in commodities also coincided with the need for gold to take a breather after a recent rally to a record.”

Demand for palladium and platinum has been hurt by shutdowns in auto plants in Japan, Hussein Allidina, head of commodity research at Morgan Stanley, wrote in a report. The metals are used to make pollution-control devices.

Carmakers Hit Brakes

Toyota Motor Corp., the world’s biggest carmaker, will suspend output at 12 Japanese factories today and tomorrow, spokeswoman Shiori Hashimoto said yesterday. Isuzu Motors Ltd., a Toyota affiliate, will halt production at its two Japanese plants until March 18, spokesman Koichi Ito said. Honda Motor Co. and Nissan Motor Co. also shut facilities in northern Japan.

Copper for three-month delivery dropped as much as 2.6 percent to $8,950 a ton on the London Metal Exchange.

Agricultural commodities also fell. Zen-Noh, Japan’s largest corn buyer, yesterday said operations to unload U.S. corn at Kashima and other northern ports were suspended because of power outages. The country is the biggest buyer of U.S. corn and ranks second for American wheat and third for soybeans.

Corn for May delivery lost as much as 2 percent to $6.53 a bushel on the Chicago Board of Trade, while wheat fell as much as 2.8 percent to $7.0025 a bushel.