Commodities Climb to Five-Week High

Commodities Climb to Five-Week High as China Eases Currency Peg

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By Whitney McFerron

June 21 (Bloomberg) -- Commodity prices jumped to a five- week high after China, the world’s third-biggest economy, eased its currency peg to the dollar, spurring bets that global demand for energy, industrial metals and crops will increase.

The Reuters/Jefferies CRB Index of 19 raw materials rose 1.2 percent to 266.15 at 11:46 a.m. in New York. Earlier, the gauge reached 267.02, the highest level since May 12. Sugar, copper and natural gas led the rally.

China’s yuan rose the most since a July 2005 revaluation after the country’s central bank ended a two-year peg, adopted during the global financial crisis to protect exporters. The MSCI World Index of equities climbed for the 10th straight session on bets that the global economy will expand. The dollar fell against a basket of major currencies, boosting the appeal of U.S. exports.

A stronger yuan “is going to make our raw commodities like grains and meats more attractive to Asian buyers,” said Dennis Smith, a senior account executive at Archer Financial Services Inc. in Chicago. “It’s expected to be a positive thing for global growth.”

Sugar surged 3.3 percent, heading for the biggest gain since June 9. Copper climbed as much as 5.1 percent, and crude oil rose as much as 2.3 percent. Before today, the CRB index climbed 3.2 percent this month.

Ending the currency peg will help curb inflation and shift investment toward service industries from exports and manufacturing, the People’s Bank of China said. The country is the world’s biggest consumer of copper, soybeans, pork and cotton and the second-largest user of corn and sugar.

Boosting Personal Income

“The policy decision that China made over the weekend is an indirect way of increasing people’s income,” said Nicholas Johnson, a commodity portfolio manager at Newport Beach, California-based Pacific Investment Management Co. “Demand for commodities will rise as their purchasing power will increase.”

The World Bank said last week that a stronger currency would help China cool inflation, which accelerated to a 19-month high in May.

“It looks like we’re going to have global growth,” which is “very positive for commodities,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida.