Commodities slumped after inflation in China stayed above the government’s target, signaling further credit tightening that may curb demand for everything from crude oil to copper.
The Standard & Poor’s GSCI Index of 24 raw materials dropped 3.9 percent to close at 681 at 3:45 p.m. New York time, led by declines in silver, energy, wheat and sugar. Gasoline plunged as much as 9 percent amid declining U.S. demand for motor fuel. Corn dropped the most allowed by the Chicago Board of Trade on forecasts that U.S. stockpiles will be bigger than analysts expected. Copper fell to the lowest since December.
Consumer prices in China, the world’s largest consumer of raw materials including metals, pork, wheat and cotton, rose 5.3 percent in April from a year earlier, exceeding the government’s full-year target for a fourth straight month. Imports of oil, copper and iron ore all dropped in April after the central bank boosted interest rates four times since October in a bid to curb inflation and slow growth.
“Commodity markets are just beginning to respond to the fact that a global industrial slowdown is poised to begin this summer,” said James Dailey, who manages about $200 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “China is likely to be at the center of that slowdown, and the inflation figure certainly feeds into concerns that more aggressive tightening may occur and compound a slowdown.”
‘Correction Begun’
On May 6, the GSCI index dropped to an 11-week low as U.S. service industries and German manufacturing orders slowed. The same day, Goldman Sachs Group Inc. said it was “cautious” about raw materials “in the very near-term.” Last month, the bank told investors to be “underweight” in commodities, after a surge in demand from China helped send the GSCI index up 39 percent in the year through April 29.
“That momentum has stalled, and a correction begun,” Dailey said.
Silver futures for July delivery fell $2.971, or 7.7 percent, to $35.515 an ounce on the Comex in New York. The metal gained 9.1 percent in the past two days, after shedding 27 percent last week.
