Commodities slump to 16-year low as China slowdown roils markets

[KUALA LUMPUR] Commodities sank to the lowest level in 16 years, joining a rout in global equities and emerging-market currencies on concern that China's economic slowdown will exacerbate gluts of everything from oil to metals.

The Bloomberg Commodity Index of 22 raw materials lost as much 1.7 per cent to 86.3542 points, the lowest level since August 1999. Resources stocks from BHP Billiton Ltd to Cnooc Ltd tumbled while Brent crude fell below US$45 a barrel for the first time since 2009.

"Sentiment is extremely negative across the commodity complex," Mark Keenan, head of commodities research for Asia at Societe Generale SA in Singapore, said in an e-mail.

"Markets are plagued by concerns of oversupply."

Raw materials are in retreat as supplies outstrip demand amid forecasts for the slowest Chinese growth since 1990. The largest user of energy, grains and metals was much weaker than anyone expected in the first half of the year, according to Ivan Glasenberg, head of commodity trader Glencore Plc Chinese shares plunged after US stocks sank last week.

"It's being fueled by the large drop in the Chinese stock market today, which is making people nervous about the management of the Chinese economy, which has direct implications for commodities," Ric Spooner, a chief market strategist at CMC Markets Asia Pty, said by phone from Sydney.

"It's now basically a risk-off move."

Shares in BHP, the world's largest mining company, fell as much as 5.3 per cent in Sydney to the lowest level since 2008, while Fortescue Metals Group Ltd. plunged 15 per cent after reporting full-year profit dropped 88 per cent. Nanjing Iron & Steel Co led losses on the Shanghai Composite Index, sliding 10 per cent as the gauge erased its gains for the year. Cnooc slumped 7.1 per cent in Hong Kong.

Oil has sunk as producers maintain or boost supply even as a glut persists, prioritizing sales over price. Iran will raise output at any cost to defend its market share, Oil Minister Bijan Namdar Zanganeh told his ministry's news website, Shana.

Brent for October settlement declined as much as 3.2 per cent to US$44 a barrel on the ICE Futures Europe exchange, the lowest price since March 2009. West Texas Intermediate in New York dropped 3.2 per cent, taking its loss over the past year to 58 per cent.

Copper on the London Metal Exchange lost as much as 3 per cent to US$4,903 a metric ton, the lowest since 2009. The metal is regarded as an indicator of global economic activity. Output topped demand by 151,000 tons in the six months through June, according to the World Bureau of Metal Statistics.

While there's speculation that market turmoil may prompt the Federal Reserve to delay an increase in interest rates, the dollar is still 16 per cent higher over the past year. That makes commodities more expensive for holders of other currencies.

Agricultural commodities weren't spared in the rout. Soybeans, wheat and corn extended losses in Chicago. In Malaysia, palm oil sank 3.2 per cent.

"It's always very difficult to call a bottom, and it's a commodity-by-commodity analysis that's required," said Graham Kerr, chief executive officer of South32 Ltd., the Perth-based mining company hived off by BHP. "We are planning for a couple of hard years," Kerr said in an interview on Bloomberg Television.

BLOOMBERG