The prices of commodities were falling sharply on Thursday, cutting into months of gains and weighing on equity markets, as China takes steps to cool off rising prices and the U.S. dollar strengthens.
The decline in commodities was widespread, with futures prices for palladium and platinum falling more than 11% and 7%, respectively, along with declines of nearly 6% for corn futures and 4.8% for contracts tied to copper. Oil prices were also down more than 1%.
Thursday’s move continued a slide that began earlier in the week, thanks in part to actions by Chinese regulators.
A Chinese government agency announced a plan on Wednesday to release reserves of key metals, including copper and aluminum, according to Reuters. Officials in the country have also warned about speculation in financial markets in recent weeks.
“Base metals prices are melting as China’s State Council escalates its crackdown against commodity speculators and hoarders by investigating [state-owned enterprises]′ overseas positions and auditing futures firms to combat squeezed profit margins,” Daniel Ghali, TD Securities commodities strategist, said in a note. “While overseas positions are harder to police with warnings, this crackdown still has some bite.”
That rapid increase in prices may have made some of the commodities markets ripe for a quick pullback. Evercore ISI technical analyst Rick Ross said in a note on Thursday that copper appeared to be at its most “overbought” level since 2006.
The weakness for commodities rippled into the equity market on Thursday, taking a bite out of energy and mining stocks.
“Rumors since Mar that CN’s State Reserve Bureau (SRB) will release reserves of non-ferrous metals to market came true on June 16. Coupled with Fed’s rate decision on Jun 17 (post strong May PPI) sent most new energy material stocks plummeting, down 5-10% overnight,” investment firm Jefferies said in a note to clients.
Shares of the Global X Copper Miners ETF were down more than 7% in midday trading, while Alcoa and U.S. Steel shed 6.5% and 8%, respectively.
The commodities market had already seen unusual volatility in 2021 before the most recent sell-off, with lumber and corn being two examples of markets where prices had spiked to historic levels before losing steam. Lumber futures, which have been sliding for more than a month, slipped an additional 1.8% on Thursday.