Commodity prices hit multi-year lows on Monday, caused by a broader slide across asset classes on mounting fears that an economic slowdown in China may be far worse than anticipated.
The Bloomberg Commodity Index — which tracks the prices of 22 commodities ranging from energy products to metals to farm items — crashed to a 16-year low in intraday trade as investors apprehended the continuous slide in China’s stock market would spread its contagion far and wide and hurt raw material demand hard.
If the Bloomberg index is any indication, the plunge between its 2011 high and now is worse than its fall during the Asian financial crisis in the late 1990s. The index has declined over 51% since its 2011 peak of 175.42, recording a greater fall than that of 42% between the high of May 1997 and the low of February 1999. However, the index suffered its worst decline during the global financial meltdown of 2008, losing 57% between its peak of 237.95 (July 2, 2008) before the crisis flared up with the collapse of Lehman Brothers and the low of 102 (March 2, 2009) after which the index started inching up gradually.
On Monday, Brent and US crude oil hit their lowest since early 2009 in intraday trade, while base metals–mainly copper and aluminium — touched their meanest in over six years, as the world’s largest commodity consumer failed to assuage investor fears about the resilience of its economy. Even gold, which soars in such times of economic uncertainties due to its safe-haven status, shed a tad on Monday from a seven-week high recorded on Friday, as investors sought to sell assets to generate cash. Some of the key farm items, which are relatively more insulated than others from the Chinese shocks, were also not spared in the latest rout, with soyabean hitting its lowest in six years.
Chinese stocks crashed over 8% on Monday — recording their sharpest one-day loss since the peak of the global financial crisis in 2007 — as investors were perturbed by the absence of policy action by China even after a 11% slide in stocks last week. The preliminary reading of Caixin’s Purchasing Manager’s Index showing on Friday the worst plunge in Chinese manufacturing in almost six-and-a-half years just worsened the fears of investors.
For a net commodity importer like India, the further drop in commodity prices augurs well, but the recent depreciation of its currency against the dollar would serve to keep a lid on such gains.
Having touched an intraday low of $43.06, its lowest since March 2009, brent crude oil inched up a tad at 0950 GMT to $43.61 a barrel, still down over 4%. The WTI was down 3.7% at $38.95 a barrel, after falling as low as $38.69, its lowest since February 2009. The US crude benchmark recorded its longest weekly losing streak since 1986 last week. The WTI has lost over 17% and Brent more than 10% this month.
Spot gold eased 0.2% at $1,158.51 an ounce by 1145 GMT, as investors booked profits after the metal hit its highest since July 7 at $1,168.40 on Friday. The precious metal gained over 4% last week, the most since mid-January, and has risen 7% from its five-and-a-half-year low of $1,077 reached in late July.
In Delhi, the precious metal, however, continued its rally and gained another Rs 150 to trade at a fresh three-month high of Rs 27,575 per 10 gram, as jewellers started stocking up to meet demand ahead of the festival and marriage season.
Benchmark copper on the London Metal Exchange dropped over 3% to $4,882 a tonne in early trade, although it pulled back to $4,885 a tonne in official rings later, down from $5,055 at Friday’s close. Output of copper — a gauge for the health of the global economy, especially that of China — exceeded demand by 151,000 tonne in the first six months of 2015, showed the data by the World Bureau of Metal Statistics.
Three-month aluminium on the LME dropped to $1,506 intraday, its meanest since June 2009. Zinc and lead touched five-year lows of $1,709 and $1,632, respectively. Zinc fell to $1,715 a tonne intraday from $1,767 on Friday and lead dropped to $1,632 intraday from $1,702 in the last session.