The great commodity slump has entered a new and dangerous stage, with two of the globe’s most important raw materials diving to fresh depths on growing fears of a Chinese slowdown.
Oil plunged to its lowest point since 2003 on Monday, as West Texas intermediate (WTI), the North American benchmark, declined to $31.12 (U.S.) a barrel. It has lost 15 per cent of its value in the first few days of 2016.
Copper, meanwhile, tumbled to a six-year low of $1.97 a pound. The metal, used for a wide variety of industrial and construction applications, is down more than 9 per cent in January.
Mounting anxiety over China is to blame for much of the recent havoc in commodity prices. The Asian giant’s frenetic growth propelled the world’s booming demand for raw materials over the past decade and its deceleration has already inflicted major damage on commodity prices.
The fear now is that even more losses may lie ahead if China devalues its currency as a way to make its exports more attractive and stem the flight of capital out of the country.
“Oil in the $20s is possible,” Adam Longson, a Morgan Stanley analyst, wrote in a report that focused on the currency risk.
Since commodities are priced in U.S. dollars, a weaker yuan would make raw materials more expensive to Chinese consumers and sap demand.
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