A worker installs a copper water pipe under Eastern Market Metro in Washington, DC, during a renovation project on Monday, April 5, 2021.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
Commodity prices fell sharply on Thursday, cutting months of gains and weighing on stock markets as China moves to slow price increases and the US dollar strengthens.
The decline in commodities was widespread, with palladium and platinum futures prices falling by more than 11% and 7% respectively, along with declines of more than 5% for corn futures and 4%. for copper related contracts. Oil prices also fell by more than 2%.
Thursday’s decision continued a decline that began earlier in the week, in part thanks to actions by Chinese regulators.
A Chinese government agency on Wednesday announced a plan to release reserves of key metals, including copper and aluminum, according to Reuters. The country’s authorities have also warned against speculation in financial markets in recent weeks.
Base Metals Prices Melt As Chinese State Council Steps Up Crackdown On Speculators And Commodity Grabbers By Investigating [state-owned enterprises]“Overseas positions and audits of futures companies to combat squeezed profit margins,” said Daniel Ghali, commodities strategist at TD Securities, in a note.
The Federal Reserve’s increased projections for inflation and rate hikes from Wednesday could also help the decline by putting upward pressure on the dollar and signaling that the central bank is closely monitoring rising prices. price. The dollar index, which measures the greenback against a basket of currencies, has risen about 1.6% since the Fed’s updated projections were released. Commodities often move inversely to the greenback, as most of them are denominated in US dollars on a global scale.
“The US dollar is probably reacting to the rise in bond yields yesterday and the prospect of an anticipated decline that would slow the supply of US dollars, which has caused commodity prices to drop significantly across the board,” he said. Jim Paulsen of Leuthold Group told CNBC. . “Commodities have been a popular investment over the past year as investors have added some protection to the portfolio against inflation.”
Additionally, UBS’s Art Cashin said on CNBC’s “Squawk on the Street” that the Chinese government tightening monetary and fiscal policies could create selling pressure on commodities.
The drop comes after a strong first half for commodities, fueled by increased industrial demand as the United States and other economies began to reopen as cases of Covid dwindle.
This rapid rise in prices may have made some commodity markets ripe for a rapid decline. Evercore ISI technical analyst Rick Ross said in a note Thursday that copper appeared to be at its most “overbought” level since 2006.
Weak commodities spilled over into the equity market on Thursday, eating into energy and mining stocks.
“Rumors since March that CN’s State Reserve Bureau (SRB) will release non-ferrous metal reserves into the market came true on June 16. Coupled with the Fed’s rate decision on June 17 (after a strong PPI in May), most inventories of new energy materials fell, down 5-10% overnight, “the company said. Jefferies investment in a note to clients.
Shares of the Global X Copper Miners ETF were down more than 7% at midday, while Alcoa and US Steel were down 6.5% and 8% respectively.
The commodities market had already experienced unusual volatility in 2021 before the last sell-off, with lumber and corn prices being two examples of markets where prices hit historic highs before they ran out of steam. Lumber futures, which have been slipping for more than a month, slipped a further 1.8% on Thursday.
-Michael Bloom and Maggie Fitzgerald of CNBC contributed to this report.
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