Commodities took another beating Tuesday, strangled by a higher US dollar and growing demand fears, especially in China where Covid is forcing mass testing once again across major cities and towns.
The continuing weakness in commodities has seen prices for many products – especially grains and oil seeds back to levels before the Russian invasion in late February and in some cases, back to pre-pandemic levels.
Oil prices stood out Tuesday with a slide to three month lows as the stronger greenback and continuing fears about China’s latest Covid restrictions took a toll on trading activity.
The prices of US West Texas Intermediate crude and the global marker, Brent both settled under $US100 a barrel.
The slide came ahead of the release of the June monthly consumer price data.
WTI crude oil fell 7.9% to a three-month low on Tuesday as the US dollar touched fresh 20-year highs and on concerns China could enter another round of Covid-19 lockdowns. issued a bullish forecast for 2023 demand.
WTI crude for August delivery closed down $US8.25 to $US95.84 a barrel, the lowest since April 11.
September Brent crude dropped $US7.44 to $US99.66 a barrel.
Oil prices were again hit by a rising US dollar, which lifts costs for international buyers. The ICE dollar index was down 0.02 points to 108.00, after earlier touching 108.56, the highest since 2002.
In fact the euro hit parity with the greenback at one stage in trading Tuesday.
That also saw the Aussie dollar slide further under 68 US cents to trade around 67.55 in early Asian dealings on Wednesday.
But the major concern is that Chinese demand will again be slashed as the country looks to cope with new infections from Covid-19’s omicron variant by locking down cities just weeks after lifting a two-month quarantine on Shanghai (and parts of Beijing) that cut the country’s oil demand by more than one-million barrels a day.
“Following a surge in cases in the business metropolis of Shanghai in recent days, new lockdowns are feared there. Shanghai had only just come out of a more than two-month lockdown at the beginning of June and widespread testing is happening in more than half the city, along with other cities and regions in the centre of the country and in the south,” Commerzbank analyst Carsten Fritsch said in a note.
Recently, Chinese President Xi Jinping had firmly rejected any departure from the country’s strict zero-Covid strategy. This means downside risks to oil demand in China because renewed restrictions on mobility can be expected time and again, depending on case numbers,” he added
Those fears about China saw copper suffer another sharp fall – more than 5% on Comex as the metal traded around $US3.25 a pound. Comex silver also fell to $US18.86 an ounce
Other commodities weakened – Comex gold lost 0.4% to settle around $US1,724.80 an ounce,
Grains fell as the US Department Agriculture upgraded its outlook and cut some demand forecasts. The stronger dollar also hit foreign demand.
Chicago Board of Trade December corn dropped 42.5 cents to $US5.865 a bushel, while November soybeans fell 62 cents to $US13.43 a bushel. CBOT September wheat fell 42.25 cents to $US8.1425 a bushel.
Traders said the prices of corn, soy and wheat futures have all retreated back to pre-Ukraine war levels as soaring costs since Russia’s invasion and broader economic concerns have damaged demand.
Iron ore prices headed lower – the SGX futures price in Singapore ended around $US105 a tonne for 62% Fe fines delivered to northern China.
That was down more than 4% for the session and the lowest the price has been since last November.
US hard coking coal was weak at around $US247 a tonne but Newcastle thermal coal prices remained above $US400 a tonne for immediate delivery and out till November.
The Dow dropped 192.51 points, or 0.62%, to 30,981.33, while the S&P 500 slid 0.92% to 3,818.80. The Nasdaq fell 0.95% to settle at 11,264.73. The ASX 200 should start square with Tuesday’s close after inconclusive trading on the overnight futures market.
