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Citigroup Says Severe Recession to Curb Demand for Commodities

October 27, 2008 at 20:58 by Mario

The prospect of a “severe” recession has increased concern that demand will wane for industrial commodities, Citigroup Inc. said.
Copper and aluminum prices will slide into a “trough cycle” in 2009 as a drop in consumption creates a surplus of metals used in homes, appliances and automobiles, the bank said. Citigroup, which earlier this year cited a “super cycle” of elevated commodity prices, said it is now forecasting a global slowdown that will be deeper than expected.
“Extreme disruptions in markets and credit rationing suggests a more severe recession in many developed countries,” Sydney-based analysts Alan Heap and Alex Tonks said today a report e-mailed to clients. “Turbulent fiscal conditions have heightened uncertainty into the demand and supply outlook for all commodities.”
Prices for copper, crude oil and wheat have plunged more than 50 percent from record highs earlier this year. The Reuters/Jefferies CRB Index of 19 commodities is down about 30 percent in 2008, heading for its largest annual decline on record. The credit crisis will continue to choke economic growth and spur further declines for commodities, Citigroup said.
The bank slashed its 2009 copper-price forecast by 45 percent. The metal will average $2 a pound next year, the analysts said. That compares with a previous estimate of $3.65 a pound and the average since June 30 of $3.16. Aluminum will average $1 a pound next year, down 23 percent from the previous estimate.

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