Commodities Plunge on Fears of China Cutback – by Alex MacDonald and John W. Miller (Wall Street Journal – July 8, 2015)

Downturn serves as reminder of weak fundamental outlook

Prices for a raft of commodities sank to multiyear lows this week, as China’s inability to stem the slide in its domestic equity markets intensified fears about economic growth in one of the world’s largest consumers of oil, metals and food.

Coming after a brief period of rising prices, the sudden downturn served as a reminder to investors of the weak fundamental outlook for several commodities already beset by weak demand and excessive supply.

In many commodities, including important industrials such as copper, iron ore and aluminum, mining companies expanded output for years because they counted on Chinese growth. But now, “China’s infallibility and omnipotence” as a guaranteed buyer have been “pierced,” said Dan Rohr, an analyst for Morningstar Inc.

Copper, often seen as a barometer for the global economy and viewed recently as poised for a price rise because of supply issues, fell this week to a six-year low, dropping to around $2.45 a pound. Crude-oil prices, which had recovered earlier this year after a crash in the second half of 2014, have resumed their slide. Even prices of wheat and corn, which had spiked in recent weeks amid signs of weak crops this year, have moderated.

Two important industrial commodities, iron ore and aluminum, both declined. Iron ore, a steelmaking ingredient, fell to $44.10 per metric ton this week, the lowest price in just over a decade, from highs of $191 in 2011. Prices for aluminum, a metal heavily used in car making and packaging, have declined 10% since the beginning of the year and nearly 2% this week.

The rout in Chinese stocks pressured prices for U.S. agricultural commodities including soybeans, which on Tuesday tumbled more than 3% to the lowest level in more than a week amid worries demand for the oilseeds could soften if importers in that country rein in or cancel purchases.

China, the world’s biggest soybean buyer, has gobbled up U.S. supplies of the oilseeds in recent years, crushing them into meal to feed its hogs and chickens, and analysts caution the country’s dependence on foreign supplies to feed a burgeoning population likely will temper any pullback in imports.

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