Chinese jitters: commodities skid to 16-year lows led by oil

Oil futures led a dramatic fall in commodity prices on Monday, with US crude trading below $40 a barrel as fears over China’s economy sent investors fleeing to safe havens such as gold.

The Bloomberg Commodity Index, which tracks 22 raw materials, lost as much as 1.7 per cent to 86.3542 points to its lowest level since August 1999.

Raw materials have slumped this year as concerns have mounted of weakening demand from China, the world’s second-largest economy and top user of everything from industrial metals and energy to food.

Fears were piqued when China devalued the yuan two weeks ago, a move that many took as a signal the economy is in worse shape than thought, and which could hurt the Asian giant’s purchasing power for dollar-denominated commodities.

Concerns on China’s slowdown will also damage the world economy have sent financial markets into a tailspin, with Shanghai stocks on Monday plunging the most in one day since 2007 – leading a rout across Asia – while Asia-Pacific currencies tumbled.

Resources stocks tumbled, with BHP Billiton closing down 5.02 per cent at A$22.89 while Fortescue lost 14.62 per cent to A$1.64 after posting an 88 per cent drop in annual profit on weaker iron ore prices.

“The steep fall in commodities today is all down to bearish sentiment about China with the huge rout in its equities market,” Daniel Ang, investment analyst at Phillip Futures in Singapore, told AFP.

“Investors fear further price drops in commodities and are channelling funds to safe havens including gold and the Japanese yen.”

Gold: the safe bet Gold edged down, but stayed close to its highest level in almost seven weeks on Monday as worries over a slowing Chinese economy pushed investors away from risky assets and into those deemed as safe haven.

The yellow metal declined 0.5 per cent in London, while silver, platinum and palladium all sank at least 2.3 per cent.

“Certainly gold is finding itself a bit of a safe-haven bid with all the volatility that’s going on in markets,” said Victor Thianpiriya, commodity strategist at ANZ Bank. “If things do get a lot worse then gold will certainly go a lot higher.”

Spot gold was down 0.6 per cent at $1,153.20 an ounce by 0638 GMT (0438 EDT), coming off the day’s peak of $1,165.11. But bullion’s drop was shallow compared to a 3.2 per cent fall in US crude and 2 per cent decline in copper.

Bullion for immediate delivery declined to $1,154.82 an ounce by 12:08 p.m. in London, according to Bloomberg generic pricing. Futures for December delivery lost 0.4 per cent to $1,154.60 on the Comex in New York.

Precious metals with more industrial uses dropped more than gold. Silver for immediate delivery declined 2.4 per cent to $14.9497 an ounce. Platinum lost 2 per cent to $999, while palladium slid as much as 5.7 per cent to $568.25, the lowest since August 2012.

Oil leads falls Oil prices have been hit particularly hard, with the US benchmark dropping to below $40/barrel for the first time in six years in New York on Friday as investors bet a global oversupply of crude is set to last.

A drop in buying from China, the number one energy importer, could be catastrophic for oil prices at a time when international markets are already heavily oversupplied and could soon see fresh supplies from Iran after its nuclear deal. The US crude futures benchmark, West Texas Intermediate (WTI) for October delivery, was down $1.29 to $39.16 while Brent fell $1.19 to $44.27 in mid-afternoon Asian trade.

Base metals drift Benchmark copper on the London Metal Exchange fell more than 3 per cent to $4,882 a tonne in early trade. The metal used in power and construction traded at $4,885 in official rings, from $5,055 at Friday’s close.

A major reason behind the sell-off in industrial metals was news on Friday that China’s manufacturing sector shrank at its fastest pace in almost 6-1/2 years in August.

Three-month aluminium fell to $1,506, its lowest since June 2009. The aluminium market is also keeping an eye on a large long position for settlement in October, which could bring a period of potential tightness and price volatility.

Zinc and lead hit five-year lows of $1,709 and $1,632 respectively. Zinc fell to $1,715 from Friday's $1,767 and lead dropped to $1,632 from $1,702.

Tin was down more than 5 per cent at $14,070, its lowest since July 13. It was untraded in rings but bid at $14,350 from Friday’s $14,900. The soldering metal has been under renewed pressure on expectations of rising shipments from top exporter Indonesia after PT Timah, the country’s top tin miner, was granted government clearance to resume exports.

Nickel fell nearly 8 per cent to $9,395, its lowest since August 12. It traded at $9,475 from $10,200. Expectations of weak demand from Chinese stainless steel mills and high inventories have undermined nickel.

Agri commodities bleed Soyabeans, wheat and corn extended losses as well, while rubber dropped to a 10-month low on the Tokyo Commodity Exchange. Palm oil slipped three per cent in Malaysia.

Gold, meanwhile, was holding steady, benefitting from the precious metal’s status as a safe bet in times of turmoil. Bullion for immediate delivery traded 0.2 per cent lower at $1,158.10 an ounce in Singapore afternoon trade.

Sanjeev Gupta, head of the Asia-Pacific oil and gas practice at business consultancy firm EY, said dealers are awaiting preliminary US second-quarter GDP data on Thursday to gauge when the Federal Reserve will raise interest rates.

Minutes from the US central bank’s last meeting dampened speculation of a rate hike in September, but most dealers still expect one before the end of the year – another factor that could hurt commodity prices by making them more expensive for global buyers.

TOCOM plunges Benchmark Tokyo rubber futures hit their lowest in over 10-1/2-months on Monday, dragged down by a sharp dive in Shanghai futures and other commodities, a rising Japanese yen against the dollar, and lower Japanese equities.

Tokyo Commodity Exchange (TOCOM) futures, which set the tone for tyre rubber prices in South-East Asia, came under heavy selling pressure, with investors having sold oil, gasoline and gold on the exchange.

The Tokyo Commodity Exchange rubber contract for January delivery finished ¥8.5 lower at ¥175.1 ($1.45) a kg. It fell to as low as ¥174.2, the lowest since October 3, 2014.

The most-active rubber contract for January delivery on the Shanghai Futures Exchange fell as much as 6 per cent to its exchange-set floor of 11,265 yuan ($1,759.36) a tonne. It closed down 5.6 per cent at 11,320 yuan.

The front-month rubber contract on Singapore’s SICOM exchange for September delivery last traded at 125.5 US cents a kg, down 6.2 cents.

Bullion prices (in ₹)Mumbai : Silver spot 36,400/kg; standard gold 27,210/10 gm; pure gold 27,360/10 gm.( Rates included VAT )

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