Commodities in freefall as China faces slowdown

Caitlin Morrison
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Production was cut at the fastest rate since November 2011
Mining stocks were dealt a body blow yesterday, with one index dropping to a 13-year low, as Chinese manufacturing PMI data dragged the commodities market down yet again.

The data, which came out yesterday morning, showed that the downturn in China’s manufacturing sector intensified at the start of the third quarter.

Production was cut at the fastest rate since November 2011, while purchasing activity declined at its sharpest rate since January 2012.

According to analysts, the numbers were the reason that commodities equities took a hammering yesterday – a view borne out by the fact that the Bloomberg commodity index fell to its lowest level since 2002.

Among the biggest mining groups listed on the London Stock Exchange, Anglo American was down by 3.97 per cent, BHP Billiton by 3.85 per cent and Glencore was down 3.68 per cent.

Richard Knights at Liberum said the worse-than-expected Chinese data was the main culprit behind yesterday’s “enormous” share movement, although increases in iron ore production over the past 18 months were having an impact, too.

The decline in the commodity market has been widely put down to recent growth in supply of iron ore while Chinese steel supply is reversing.

Chinese property prices have been falling over the past 18 months, with construction following at a lag of around six months. Less construction means steel demand has been dwindling.

Knights added that the market was likely to get worse over time: “Iron ore is, in my view, going to fall significantly in the second half of the year.”

Copper, which is currently trading at around its lowest price since 2009, could be harder to predict.

However, he noted: “It’s much more tuned in to Chinese construction than people give it credit for. When construction activity slides, that pulls copper down with it.”

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