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Commodities market takes another bashing

By Wang Lan (China Daily)
Updated: 2008-10-08 11:17

The grim outlook on the global economy arising from uncertainties over the full extent of the financial crisis in the United States has sent global commodities markets into a tailspin, with many futures contracts on the Shanghai exchange yesterday dropping to their daily limits.

Contract prices of copper, zinc and natural rubber on the Shanghai market dropped for the second consecutive day to their daily limits, with the most actively traded copper contract for delivery in December closing at 48,640 yuan ($7,128) per ton, the zinc contract for the same month at 12,845 yuan and natural rubber for delivery in January 2009 at 17,045 yuan.

Gold futures bucked the trend by surging more than 4 percent to 192 yuan per gram on the Shanghai bourse, due to a rush of investment funds seeking refuge in the precious metal from the tumult of capital markets across the world. Economists and analysts said the fallout of the worsening US financial crisis deepened investors' worries about a global economic recession that could seriously reduce international demand for raw materials.

"The oversupply of raw materials aggravated by declining global demand that is resulting from the global economic slowdown had been expected earlier by the market," said Jing Chuan, a specialist in metals at Great Wall Futures Co.

"The recent selling fervor of futures contracts mainly stemmed from investor fears on the systematic risks resulting from tightening liquidity in the international financial system," he added.

Analysts said the persistent, sharp drop in prices on international stock markets passed on pessimism to commodity markets and further dented investor confidence.

"Investors whose portfolios consist of both stocks and commodities futures contracts have to clear their futures positions to cash in and cover their loss on the equity market, which saw a big plunge during the past week with the impact of the US credit crisis deepening," said Zhou Zhiqiang, a senior analyst in commodities at Great Wall Futures Co in Shanghai.

In global markets, prices of a wide variety of commodities have seen a big slump in the past week. On the London Metal Exchange, the price of copper futures contract for delivery in three months dropped an aggregate 12.4 percent to $5,560 per ton over the past week.