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Concerns over interest rates, recession cause sharp decline in commodities

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Sep 06, 2022 - 03:16 AM

ISTANBUL (AA) – Led by metals, sharp declines were seen in commodity markets last week due to expectations of sharp interest rate hikes from central banks, COVID-19 lockdowns in China and recession concerns.

Last week’s quarantine measures in China and increasing recession concerns after weak manufacturing industry data announced globally, pushed the dollar index to 110, the highest since June 2002.

The rise of the dollar was among the important factors affecting the commodity markets negatively.

Analysts stated that the demand for the dollar increased globally with the expectation that the aggressive policy steps to be taken by the central banks due to inflationary concerns could push the already slowing economies into recession.

Underlining that the European Central Bank is expected to increase interest rates by 75 basis points, analysts said that due to the turmoil in the real estate sector in China, economists’ expectations for the country’s economy for 2022 have deteriorated.

With these developments, sharp declines were dominated by metals last week in the commodity market.

Copper and aluminum fell 7%, zinc 12.6%, nickel 4.2% and lead 4.6%.

Energy-based concerns in Europe, Fed’s messages for tighter monetary policy and China’s measures against the pandemic increased the expectations that copper demand will drop.

The concerns about copper demand are outweighed by continued sluggishness on the supply side.

Chile, which handles more than a quarter of the world’s copper mining, reported an 8.6% decrease in production in July compared to the previous year.

Precious metals also fell by more than 4% last week. Gold fell 1.5% and palladium 4%.

Silver, which saw its lowest level since June 2020 at $17.562 per ounce, fell 4.5%, while platinum, which saw its lowest level since July 2020 at $821.95, lost 3%.

On the energy side, the barrel price of Brent oil decreased by 6% and the price of natural gas traded on the New York Mercantile Exchange decreased by 4.2%.

Concerns that aggressive interest rate hikes will slow down the economies and reduce fuel demand, and the tightening of COVID-19 measures in China were effective in the decrease in prices.

Demand concerns increased in agricultural commodities

Last week, sharp declines were also effective on the agricultural side.

Wheat traded in the New York Mercantile Exchange gained 0.5%, while a horizontal course was observed in corn. Soybean prices fell 2.8%.

Cotton decreased 12.3%, coffee 4.1%, sugar 1.8% and cocoa 0.3%.

Analysts said that with the hawkish statements of the world’s leading central banks, demand concerns in agricultural commodities, especially cotton, increased.

 

*Writing by Gokhan Ergocun

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