(Bloomberg) -- Commodities have shed all of their gains this year as a challenging outlook in China, a selloff in US natural gas and losses in foodstuffs, weighed on raw materials.
The Bloomberg Commodity Spot Index — which tracks an array of energy products, metals and crops — has slumped almost 6% so far in July, putting it on course for the worst monthly performance since May 2023.
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“Commodities have lost favor with speculators,” said Warren Patterson, head of commodities strategy at ING Groep NV. Growing concerns over China have clouded the demand outlook, and the Third Plenum — a recent gathering of top policymakers — did little to ease these worries, he said.
The slump in raw materials may be greeted with relief by many central bankers, including in the US, as it stands to add to deflationary pressures at a time when policymakers are weighing a shift to lower rates. Still, it’ll be challenge for producers, such as members of oil producers cartel OPEC+, as lower prices crimp state revenues. Miners and traders may also face pressure.
The poor outlook for Chinese demand is expected to dominate oil markets, while for copper, bloated domestic stockpiles are causing China to export large volumes into global markets, Patterson said.
Copper — widely regarded a bellwether industrial metal given its broad array of uses — has dropped more than 6% on the London Metal Exchange this month, tumbling back below $9,000 a ton after hitting a record above $11,000 as recently as May. Brent, the crude benchmark, has lost 8%. US natural gas dropped by more than a fifth in July, while in agricultural markets, corn, wheat and soy futures are all lower.
Some major commodities not included in the Bloomberg Commodity Spot Index have also been under pressure. Among the most significant, iron ore futures in Singapore have dropped back below $100 a ton as Chinese mills make less steel, while leading miners dig up more ore.
In commodity-related stocks, the Australian-listed shares of BHP Group Ltd. — the world’s largest miner — closed at the lowest level since 2022 earlier this month; London-listed Glencore Plc has slumped more than 5% in July; and Brazilian iron ore miner Vale SA is on course for its sixth monthly drop in seven.
The Bloomberg commodities gauge has fallen by more than a 10th from a peak in mid-May. It’s now at the lowest since early March as it dropped in the first couple of months of the year before picking up steam.
Still, not everything has dropped. Gold — which has the single largest weighing in the index — is up more than 2% so far in July. The metal hit a record earlier this month on expectations it stands to benefit from a looming interest cut by the Federal Reserve.
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