| From Monday, but still relevant. |
Commodities prices were on Monday heading for their biggest quarterly drop in more than 50 years on concerns that the US economic slowdown is hitting China, the worldÂ’s engine of raw materials demand.
| A global benchmark of commodities prices, has fallen more than 23.5% since the end of June |
Bankers fear that the drop in commodities prices will trigger a wave of liquidation among speculative investors, further depressing prices in the short term.
Kamal Naqvi, head of commodity hedge fund sales at Credit Suisse, told a gold conference in Kyoto that commodity hedge funds could lose up to 25 per cent of their assets by the end of September because of investor redemptions.
“Redemptions are going to happen,” Mr Naqvi said, referring to investors’ assets in hedge funds.
But he added that pension funds and other long-term institutional investors did not plan to liquidate their positions for the time being.
ChinaÂ’s steelmakers were defaulting on contracts to import iron ore from India.
This has provided the starkest sign yet that Chinese demand for raw materials is cooling amid slower economic growth. |
The Reuters-Jefferies CRB index, a global benchmark of commodities prices, has fallen more than 23.5 per cent since the end of June.
With just one trading day left in the quarter, that is its worst performance in any quarter since 1956, when the index was first published, and is double the size of the previous worst quarterly drop.
The drop in the Reuters-Jefferies CRB index is a sharp reversal of the strong gains of the first half of the year, when it posted a 29 per cent increase. The index is now 1 per cent down in the year to date.
Worries about ChinaÂ’s commodities demand were exacerbated on Monday after news emerged that the countryÂ’s steelmakers were defaulting on contracts to import iron ore from India.
This has provided the starkest sign yet that Chinese demand for raw materials is cooling amid slower economic growth.
Michael Wittner, global head of oil research at Société Générale in London, said world economic growth was at risk.
He said slowing economic growth in the US and other developed nations might weigh on China and other developing economies via their trade links, but also a cooling in their domestic activity. “The perception in the commodities market about emerging economies is in the process of changing,” Mr Wittner said.
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