The global commodities market has witnessed a significant downturn, erasing all gains made earlier this year, influenced by a challenging economic outlook in China, a sharp selloff in US natural gas, and declines in various foodstuffs.
According to the Bloomberg Commodity Spot Index, which monitors a diverse range of energy products, metals, and agricultural commodities, July has seen a nearly 6% decline, marking it as the worst monthly performance since May 2023.
Warren Patterson, head of commodities strategy at ING Groep NV, highlighted a waning interest from speculators, attributing the downturn to mounting uncertainties surrounding Chinese demand. Concerns were further exacerbated by outcomes from the recent Third Plenum, where top policymakers failed to alleviate market apprehensions.
The downturn in raw materials may provide some relief to central bankers, particularly in the US, as it adds to deflationary pressures during deliberations over potential interest rate adjustments. However, producers, including members of the OPEC+ oil cartel, face challenges due to reduced revenues from lower prices, while miners and traders are also feeling the squeeze.
The outlook remains bleak for Chinese demand, particularly impacting oil markets, where oversupply concerns persist, and copper markets, where substantial domestic stockpiles have led to increased exports to global markets, as noted by Patterson.
Copper, considered a key indicator of industrial activity due to its widespread industrial uses, has plummeted over 6% on the London Metal Exchange this month, falling below $9,000 per ton after reaching highs above $11,000 in May. Similarly, Brent crude, the global benchmark, has declined by 8% in July, and US natural gas prices have dropped by more than 20%. Agricultural markets have also been affected, with corn, wheat, and soy futures experiencing declines.
Beyond the Bloomberg Commodity Spot Index, other major commodities have faced significant pressure. Iron ore futures in Singapore dropped below $100 per ton as Chinese steel production decreased, despite increased mining efforts by leading producers.
Stocks of major commodity-related companies have also reflected the downturn. BHP Group Ltd., the world’s largest mining company, saw its Australian-listed shares reach their lowest level since 2022 earlier this month. London-listed Glencore Plc has declined by over 5% in July, while Brazilian iron ore giant Vale SA is heading towards its sixth monthly decline in seven months.
While the Bloomberg commodities gauge has fallen by more than 10% from its peak in mid-May, some commodities have shown resilience. Gold, with the highest weighting in the index, has increased by more than 2% in July, reaching record highs earlier in the month amidst expectations of an impending interest rate cut by the US Federal Reserve.
The sharp decline in commodities underscores ongoing volatility and uncertainty in global markets, with implications for both economic policies and industrial sectors worldwide.
