Commodity prices melt after weak US figures

A fall in commodity prices is bad for producers, but might help to boost growth. Not to mention easing the pressure on motorists' wallets.

by Emma Haslett
Last Updated: 24 Jun 2011
Good news for anyone who drives a car, drinks coffee, eats sugary foods or, er, wears clothes – in short, most people. After months of rising prices, the cost of basic commodities like copper, cocoa, cotton, coffee, oil, sugar and lead have all plummeted amid concerns about the strength of the global recovery, after data released by the US showed that its jobs market is struggling to pick up. Obviously, that isn’t great for workers in the US – but for motorists who are struggling to pay the cost of filling up their cars, as well as retailers, for whom rising commodity prices have put pressure on their bottom lines, this might just be moment they’ve been waiting for…

The price of Brent crude futures fell by more than $10, or 8.6%, to $110.80 per barrel, while in New York, the West Texas Intermediate oil future, something of a bellwether for global oil prices, dropped below $100 for the first time since the troubles in the Middle East, which were seen to be threatening supply, began. Silver has also dropped by more than a quarter to $38 an ounce, from a 31-year high of $50 an ounce.

Despite the bad news about the US jobs market, analysts have already expressed relief. That’s partly because while higher prices meant more profits for producers, there had been concerns that as the cost of basic materials rose on top of inflation just as salaries remained stubbornly stagnant, consumers’ wallets were becoming increasingly inaccessible – which was putting extra pressure on growth.

The other argument is that the recent increases in prices have been as much down to traders after a fast buck as 'real world' effects. Hence an outburst by Premier Foods boss Robert Schofield earlier this week: he reckons that rather than supply and demand affecting prices, it’s all down to speculators. And that by driving up prices, these speculators are making it difficult for producers to sell food at a fair price. But after today's falls, those opportunist investors might be feeling in need of a break from the markets.

Of course, it’s hard to believe that any signs of the US economy flagging can really be good news. But the drop in commodity prices should at least bring some temporary relief. Unfortunately, it’s going to take a while for all of this to filter through to consumers – if, indeed, it does. At the moment, it’s not clear if this is a slight blip or an about-turn. But if it is, it won’t be too long before we can dust off those driving gloves...

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