Commodities crash to multi-month lows as recession fears grip markets – The Hindu BusinessLine

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More fall likely as analysts draw parallel to 2008 plunge

As fears of recession, global economic slowdown and a flare-up of Covid cases gripped investors across the world, commodities from crude oil to natural gas, copper to cobalt and nickel to palm oil to cotton crashed to multi-month lows.

Abdul Hameed, a palm oil market analyst in Pakistan, drew a parallel to 2008 developments when prices of many commodities plunged by 70 per cent.

Russia-Ukraine conflict

The development comes after commodities such as copper and nickel, key raw materials for industries, had zoomed to multi-year highs after the Ukraine War broke out. Most of the commodities surged particularly on March 7 US and its NATO allies threatened Russia with economic sanctions for its aggression against Ukraine.

Fears of a recession have gripped the global community over the last couple of weeks as inflation soared and central banks looked at hiking interest rates to rein the price rise. The Reserve Bank of India has raised its reference rates by 90 basis points over the last 8-9 weeks. The US Fed has also been indicating of increasing the rates further. 

On the other hand, inflation has skyrocketed in some nations to a multi-year high. In the US, it is at a 40-year high, while in the UK it is at a 30-year peak. The re-emergence of Covid in China with fresh mass testing being carried out in Shanghai further aggravated the situation. 

Over 10% monthly fall

As a result of these developments, copper prices have plunged to a 19-month low and aluminium to a one-year low, while Brent crude dipped towards $100 a barrel after falling a record 10 per cent on Monday. Western Texas crude also dropped by a similar margin to rule at $99.

Gold, which had topped $1,800 again late last week, fell to $1,755 an ounce, while steel slipped to a nine-month low of 4,242 Chinese yuan a tonne. On a monthly basis, all these commodities have dropped by over 10 per cent. 

Metals such as cobalt, lead, zinc and tin have also dropped by a similar margin over the past month. The falling trend did not spare agricultural commodities either as crude palm prices fell by 10 per cent to nearly a year’s low, while soyabean oil dropped to a 23-month low. Cotton, which had been in the limelight for rising to an 11-year high last month, dipped to a nine-month low below 100 cents a pound. 

More fall?

The plunge in the price of commodities has seen indexes drop sharply. The LME Index has dropped 33 per cent since its March 7 peak to 3,696 now. the Reuters CRB Index, which measures 19 commodities such as energy, metals and agriculture items, has dropped over 16 per cent since its June 8 peak to 296, while the S&P GSCI Index, a composite index of commodity sector returns, is down 17 per cent to 3,585.4 during the same period. 

According to analysts, commodities prices have crashed only on fears in view of slack demand. There could be more bottom side to the crash that is being witnessed now.


Published on July 06, 2022


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