The Bloomberg headline reads: “Commodities dropped for a second day, led by metals and oil, after data showed weaker manufacturing growth in China.” The northern economy benefits form strong demand for commodities and feels the effects of lower demand/prices.
Chinese and Australian reports today signaled a slowdown in manufacturing as a U.K. Purchasing Managers’ Index showed a third month of contraction. Aluminum declined to $1,829 a metric ton while copper fell to $6,916 a ton. China is the biggest buyer of industrial metals and the largest energy consumer. Gold fell 0.5 percent, after dropping 7.6 percent in April, the biggest monthly loss since December 2011. Tin will follow gold and copper into a bear market today if it closes at or below $20,020 a ton. It slipped 2.7 percent to $19,820 a ton.
WTI oil for June delivery dipped $1.43 to $92.03 a barrel in electronic trading on the New York Mercantile Exchange, decreasing for a second day.
The Australian Government published an excellent short paper on the changes in the last 25 years particularly urbanization and the impact of China on the world’s commodity markets. “China’s consumption of copper and aluminum has increased by annual average rates of around 16 per cent over the past decade, in line with the rising urban share of China’s population, and consistent with earlier processes of urbanization among former industrializing economies. With its rapid growth, intensive use and sheer scale, China has become the world’s largest consumer of steel, aluminum, and copper, accounting for around 40 per cent of global consumption for each — a share two to three times larger than that of Japan or South Korea at the peak of their respective metals demand cycles.”
China’s importance on commodity prices cannot be over-emphasized enough. When China’s torrid growth rate slows the northern economy feels the effects.