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Commodities eye

Commodity prices hit 3-month low as China worries intensify

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Investors are glued to monitors displaying share prices in Shanghai.   © Reuters

TOKYO -- Plunging Shanghai stocks are fueling concerns over the Chinese economy, depressing global commodity prices.

     The Thomson Reuters/CoreCommodity CRB Commodity Index fell Tuesday to its lowest in three months.

     The price of copper on the London market fell below $5,300 per ton Tuesday, the lowest in six years. China, which uses the metal for housing and automotive applications, accounts for 40% of global demand. British research company Wood Mackenzie in June downgraded its projection of global copper consumption growth for 2015.

     Aluminum, also used in home construction, dropped to around $1,640 per ton, a six-year low.

     Crude oil, used for petrochemicals and gasoline, has dipped over 10% this month, with prices sliding to the lowest in three and a half months. Futures contracts on the New York market hovered around $51 per barrel Tuesday, down about 10% on the year.

     The iron ore market also is languishing. Spot prices of Australian products, which serve as a benchmark, have sagged about 20% in a month to $51 per ton, the lowest in two and a half months.

     Export prices of hot-rolled steel sheets are 15% cheaper than the 2014 average.

     "The sharp drop in Shanghai stocks is weighing down the market," said Tetsu Emori, CEO at Emori Capital Management. With the dollar trading strong, gold futures fell nearly $20 from Monday to $1,150 per troy ounce.

     The recent Chinese stock market downswing is partly a reaction to the earlier rally driven by individual investors increasing margin trading. Meanwhile, commodity prices were already declining during the stock surge, reflecting the sluggishness in the Chinese housing market and delays in public works spending.

     Toshihiro Nagahama, chief economist at the Dai-ichi Life Research Institute, warned that China's economy may decelerate further. China already has excess production capacity in the materials industry, and the supply-demand gap is likely to widen.

     China produced 820 million tons of crude steel in 2014, 80 million tons more than demand. Its excess supply may be exported for low prices, possibly affecting Australia, Brazil and other resource-rich economies.

     Marine shipping companies, which are heavily influenced by China's economy, have been trading lower on global stock markets. Global industry leader A.P. Moller-Maersk of Denmark has seen its stock tumble nearly 30% since the end of March. In Tokyo, Nippon Yusen and Mitsui O.S.K. Lines shares are lacking momentum. Chinese imports of iron ore are not increasing, and the bulk carriers used to transport them are in excess supply, said Masaharu Hirokane, analyst at Nomura Securities.

(Nikkei)

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