Nasty Night for Commodities Markets – ShareCafe
Commodity prices slid sharply Wednesday, with oil, copper and iron ore down amid renewed worries about growth and especially the health of the Chinese economy.
Oil prices fell sharply to around $US109 a barrel for West Texas Intermediate, the US marker and just over $US111 a barrel for the global benchmark, Brent.
The falls reflect growing fears among traders that supplies will rise too quickly if the US and other economies slow as central banks try to control rampant inflation.
US Federal Reserve chair, Jay Powell told US Congress on Wednesday that the central bank is determined to bring down inflation and has the ability to make that happen.
“At the Fed, we understand the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,” the Fed chair told the US Senate Banking Committee.
But he did admit a recession was possible.
“It’s not our intended outcome at all, but it’s certainly a possibility, and frankly the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2% inflation and a still strong labor market.”
And that hit commodities a bit harder than equities.
Wall Street slowed to a close that saw the Dow drop 47.12 points, or 0.15%, to 30,483.13, easing lower in the final hour of trading.
The S&P 500 eased 0.13% to 3,759.89 and the Nasdaq slipped 0.15% to 11,053.08.
But the most notable moves came in commodities.
Iron ore hit its lowest levels since early last December and if the current weakness continues, will fall under $US100 a tonne sooner than later.
Worries about weak demand and rising stocks in China (as evidenced by the 192 million tonnes of crude steel produced in April and May) are driving prices lower.
The MB Fastmarkets price for 62% Fe fines imported into Northern China fell almost 6% to $US108.98 a tonne on Wednesday.
Markets are particularly worried that demand growth expectations linked to China’s pledge to boost infrastructure investment may not happen, especially with China’s zero-covid policy still in play,” said Commonwealth Bank of Australia analyst Vivek Dhar.
Worries remain about renewed restrictions dampening overall domestic demand, as China continues to detect new coronavirus cases day after day.
Disruptions to construction activity caused by heavy rains in some parts of China have also led to the piling up of steel inventory, prompting steel mills to idle blast furnaces to cut losses.
“Doubts over China’s future steel demand growth has meant that markets could no longer ignore current market conditions of oversupply in China’s steel sector,” Dhar said.
The Singapore Exchange (SGX) iron ore futures price fell more than $US6 to around $US108 a tonne (for 62% Fe fines) on Wednesday.
That saw shares in BHP and Rio fall by 3.8% and 4% respectively in London trading on Wednesday.
Copper prices tumbled on Wednesday to their lowest level since March 2021 as fears over a global economic slowdown dented investor sentiment.
Not even the start of a national copper workers strike in Chile, the world’s biggest producer, could stop the slide.
Copper for delivery in July fell 2.6% from Tuesday’s settlement, touching a low of $3.88 per pound ($8,550 per tonne) Wednesday morning on the Comex market in New York.
Base metals remain pressured by a challenging demand outlook related to China’s covid-19 lockdowns and to monetary policy tightening raising recession fears over the trade-off between inflation and growth,” Standard Chartered wrote in a note.
Chilean state-owned copper producer Codelco, the world’s largest, was hit on Wednesday by national stoppage against the miner’s decision to permanently close an allegedly polluting smelter in the country’s central region