Miners from Australia to China led a selloff in resources shares after metals prices slumped and Citigroup Inc. warned the worst commodity meltdown since 2008 may have further to run.
The Bloomberg Asia Pacific Mining Index of the biggest companies in the region tumbled the most in almost a month as BHP Billiton Ltd. and its spinoff South32 Ltd. slid more than 3 percent. Chinese metals producers including Jiangxi Copper Co. and Aluminum Corp. of China Ltd. declined as Glencore Plc’s stock in Hong Kong followed its London shares to a record low.
Returns from raw materials are languishing near the weakest in 16 years amid rising inventories just as demand growth slows in China, the world’s biggest consumer of everything from cotton to zinc. Money has been flowing out of funds linked to metals, crops and energy, while investors have punished shares of miners and oil drillers.
“Slowing growth in China, the world’s largest consumer of commodities, is the biggest contributing factor for slumping prices,” Will Yun, a commodities analyst at Hyundai Futures Corp. in Seoul, said by phone. “Unless China comes up with more definite policies to stimulate the economy, bearish prices will most likely continue.”
Copper led a slide in industrial metals on the London Metals Exchange on Tuesday, dropping the most since July, while zinc fell to the weakest in more than five years. The Bloomberg Industrial Metals index, which reflects returns from aluminum, copper, nickel and zinc futures, tumbled 2.8 percent, the most in six weeks and was little changed on Wednesday.
Excess supplies and a sluggish world economy mean it’s “hard to argue that most commodity prices have reached their trough for the year,” analysts led by Ed Morse, the global head of Citigroup’s commodities research, said in a report Tuesday. The bank is bearish on crude oil, aluminum, platinum, iron ore, cocoa and wheat in the next three to six months.
“Across energy, industrial metals, and agricultural products markets remain oversupplied, partially because of the sluggish world economy, but largely because of the over-investment in developing new supplies in the last decade and favorable weather conditions providing bumper row crops,” Morse said.
Citigroup isn’t alone in its pessimism, with banks from Goldman Sachs Group Inc. to Morgan Stanley also forecasting more declines for raw materials. The Bloomberg Commodity Index, a measure of returns for 22 components, has tumbled about 15 percent since June 30, heading for the worst quarter since the end of 2008. It slid 1 percent on Tuesday and was little changed at 11:19 a.m. in Singapore.
China’s slowest expansion in decades is cutting demand just as farmers, miners and oil drillers expanded supplies, encouraged by prices that were at record highs in 2008. It’s a reversal from just a decade ago, when booming growth across Asia fueled a synchronized surge across commodity prices, dubbed as the super cycle. Citigroup called the end of the super cycle in late 2012.