"The general concern of a slowdown in China has petrified market speculators," Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees more than $115 billion in assets. "A deceleration in demand from major economies like China will continue to be a thematic concern for investors."
Forecasting moves in commodity markets has become more difficult as price swings have increased, said Peter Sorrentino, a fund manager who helps oversee $14.5 billion at Huntington Asset Advisors in Cincinnati. The 15-day historical volatility on the S&P GSCI was near the highest in two months last week, data compiled by Bloomberg show.
Demand for some raw materials may rebound as China's government adds to stimulus measures to shore up growth, Morgan Stanley analysts led by New York-based Hussein Allidina said in a March 18 report.
China Lending
The People's Bank of China lowered the requirement for reserves at large banks in February for the second time since November to spur lending. The nation decided last week to boost rural credit by cutting reserve ratios for more branches of Agricultural Bank of China Ltd., the nation's third-biggest lender by market value.
While China's growth will slow to 8.3 percent in 2012 from 9.2 percent last year, the expansion will rebound to 8.6 percent in 2013, according to the median of 19 economist estimates compiled by Bloomberg. Premier Wen Jiabao cut the country's annual growth target to 7.5 percent earlier this month, the lowest since 2004. China is the world's biggest energy user and consumes about 40 percent of its copper.
Sales of previously owned U.S. houses held in February near an almost two-year high, a report from the National Association of Realtors showed March 21. Two days later, the government reported that new home sales dropped in February for a second straight month, a sign that the housing recovery may be uneven.
Investment Flows
Investors pulled $127 million out of commodity funds in the week ended March 21, according to Cambridge, Massachusetts-based EPFR Global, which tracks investment flows.
Money managers boosted bets on a copper rally by 20 percent to the highest since August even as prices last week fell by the most in five weeks, the CFTC data show. Inventories monitored by the Shanghai Futures Exchange have more than doubled this year, signaling slowing Chinese demand. Lead dropped 5.4 percent to $1,995 a metric ton in London last week, the biggest decline since December. Corn tumbled 3.9 percent to $6.465 a bushel in Chicago, the most since mid-January.
TD Securities Inc. cut its 2012 price forecasts for most precious and industrial metals last week, citing "diminishing China growth expectations," Bart Melek, the Toronto-based head of commodity strategy, said in a report March 23.
"With China deteriorating, Europe in recession and the U.S. recovery looking uncertain, the picture for commodities is bearish," said Steve Mathews, the chief investment officer of Flintlock Capital Asset Management LLC in New York, which has $116 million in assets under management. "I don't see a lot of impetus right now for commodities to go higher."