Commodities remain stuck in a slump

So much for the commodity recovery. After a 2016 rally that ended five straight years of declines, prices of everything from crude oil and zinc to sugar and soybeans are once again mired in a slump.

The outlook for industrial materials like iron ore and coal may get even worse, with slowing economic growth in China – the world’s top consumer – the main concern. The Bloomberg Commodity Index has dropped for three straight months, the longest decline in more than a year.

While demand for many raw materials remains strong, the growth and the tight supplies that supported last year’s rally are fading, according to Macquarie Group. Oil inventories are so large that Opec has extended this year’s production cuts for another nine months. Global stockpiles of grain before the 2017 harvest are the biggest ever, and a London Metal Exchange price index is in its steepest decline since 2015.

“You can see weakness emerging in many parts of the supply chain,” says Colin Hamilton, global head of commodities research at Macquarie.

Some investors are betting prices have peaked amid signs that industrial activity is slowing in China.

Among the worst hit in recent months was iron ore and bulk commodities, Macquarie said.

The raw material used to make steel last year rallied 81% and touched a two-year high of $94.86 a metric ton in February as China stockpiled supply and looser economic policy stoked demand.

The price tumbled 39% to $55.97 on Thursday, the lowest since October, according to Metal Bulletin. – Bloomberg