A slump in the prices of crude oil, aluminum and copper deepened on Monday following the release of Chinese trade data that appeared to confirm market expectations that demand will remain slack in the in the world's biggest market for basic industrial commodity inputs.
China's exports in July slid 8.3 per cent from the year earlier month, compared with a gain of 2.8 per cent in June, according to data released on the weekend from China Customs. The data showed imports fell for the ninth month in a row, dropping 8.1 per cent in July from the same month a year before, worse than a 6.1 per cent decline in June.
Concerns about China's economy were key during the Asian trading day in pushing lower prices of industrial metals such as aluminum and copper, which were already at multiyear lows. Crude oil is at the lowest prices in about four months.
"As long as China worries, eurozone woes and dollar strength dominate the headlines, sentiment across metals markets will be weak," said Casper Burgering, senior economist manufacturing and industrial metals at ABN Amro Bank.
The trade data are the latest negative news from China for the commodity sector. The market is also concerned about demand in Europe and that a possible rise in US interest rates this year could lift the value of the US dollar, which would raise the cost of commodity imports for many buyers around the world including Chinese users. China's volatile stock market has also weighed on global commodity prices in recent weeks, though on Monday the Shanghai Composite Index of stocks surged 4.9 per cent as the trade data encouraged stock investors that such negative news would prompt Beijing to add stimulus to the economy.
China's economic health is particularly important to the global commodity sector due to the strong demand from the nation's industrial users, which consume as much as 45 per cent of the world's annual output of metals. Facing slack demand at home, Chinese metals producers are adding to the global woes by increasingly exporting their product.
Some aluminum smelters have stopped producing due to the falling prices but others have boosted output, in some cases encouraged by incentives from local governments where they operate, such as cheaper electricity prices that lower their production costs.
On the London Metal Exchange on Monday during Asian trading, three-month aluminum futures fell to a low of $US1,583 per metric ton, before edging up to $US1,584.50 per ton. The levels haven't been seen since July 2009.
Three-month copper futures on the LME hit a six-year low of $US5,118 per ton, before rebounding to $US5,160 per ton. The price of zinc on the LME fell to a two-year low of $US1,850 per ton, before inching up to $US1,873 per ton.
The China economic news also dented crude oil futures, which are down amid continuing strong production output in nations including Saudi Arabia and Iraq. The market is also watching for the chance exports from Iran will resume.
During the Asian trading day, prices recorded on the New York Mercantile Exchange showed light, sweet crude futures for delivery in September fell to a low of $US43.35 per barrel, before edging up to $US43.73 per barrel. Brent crude futures on London's ICE Futures exchange fell 12 cents to $US48.49 a barrel.
"As we look to 2016, sanctions could be lifted on Iran, adding 500,000-700,000 barrels per day," according to a Morgan Stanley report.
However, it said that prices are already likely near the bottom.
China's industrial demand for oil may slow in the next few months, although China's government has been taking advantage of the low prices to build up its oil reserves, said Kai Hu, senior vice president at Moody's Investors Service. He added that the government will be careful about buying too much too quickly as it could induce a price rise in the market.
