By Chanyaporn Chanjaroen Nov. 17 (Bloomberg) -- Commodities will be under pressure for as long as 18 months, with UBS AG predicting lower prices next year for all bar four of the 28 raw materials it forecasts following a collapse in credit for industry. ``Credit is now incredibly scarce and capital is being hoarded by commercial lenders,'' UBS analysts including London- based Dan Brebner wrote in a quarterly report today. ``We find it difficult to envision that the contraction in credit availability and associated demand correction will be a short-lived process.'' Commodities are headed for their worst annual drop in more than a quarter-century. The U.S., the world's biggest consumer of oil, has fallen into a recession, followed by the U.K., Japan, Germany and the 15 European nations that use the euro. A slump in consumption of steel, a benchmark for industrial demand of raw materials, is feeding through to markets including iron ore and shipping, Brebner wrote. ``The demand environment has deteriorated at an unprecedented rate as producers and consumers of materials and energy struggle to find financing,'' he wrote in the report. ``International trade appears to be freezing up.'' A reversal of the decline will most likely be a ``drawn out process of unwinding the credit excesses which have been effectively building for over 20 years,'' he added. Keynes in China The $586 billion spending package unveiled Nov. 10 by China, the biggest consumer of industrial metals, is a ``mild positive for commodities demand in what is otherwise a sea of negative demand.'' The funds include already planned spending and are aimed at softening a slump rather than eradicating it, he said. Steel output in the country, the world's largest producer, will contract 15 percent next year, according to the UBS note. ``The correction in steel bodes poorly for other commodities as well, including copper aluminium, iron ore, coking coal and potentially oil,'' Brebner wrote. Curbs in supply resulting from the credit crisis threaten to accelerate inflation after a recovery occurs, UBS said. Thermal coal, gold and soybeans are the bank's ``preferred'' commodities, it said. Coal will benefit from supply constraints in major producing countries including Russia, Indonesia and South Africa. Gold will rise because of its haven status as well as rising demand for the precious metal, the report said. To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net.

Source