From iron ore to corn, commodities cool with China in focus

Wild swings in commodities ranging from farm products to industrial metals are here to stay as traders brace for more market volatility in the wake of Chinese government moves to curb prices.

Futures cooled this week for raw materials including iron ore, corn, wheat and copper, though traders and analysts say it's too soon to count out agricultural crops and metals. While the Bloomberg Commodity Spot Index, which includes energy, has tumbled 2.4% in the past two weeks, it's still up 19% for the year.

"It's not a market for the faint of heart," said Matt Bennett, an Illinois corn-and-soybean farmer who's cofounder of commodities brokerage AgMarket.net. "More volatility is likely, especially as we enter into the heart of the U.S. growing season."

Iron ore slumped into a bear market this week on concern that the demand that pushed prices to a record is faltering as China moves to cool soaring commodities. Futures on the SGX recovered from their lows to trade at $183.90 a ton on Thursday. Copper, viewed as an economic bellwether, last week posted its worst week since September, but is still trading near a record high.

Wheat has fallen more than 15% from an eight-year high in late April, while corn is around the lowest in a month. Soybeans and canola have also tumbled.

China's policy target is to curb the pace of price increases "but not kill the rally entirely," Citigroup analysts said Tuesday in a note. "We expect a renewed round of steady commodity price increases once the current knee-jerk price corrections run their course."

Inflation Damper

The pause in commodities may help temper inflation of food, cars and appliances as more of the global economy reopens after months of pent-up demand, though signs abound that the reprieve may be short-lived. Bad crop weather worries and mining labor woes linger, fueling supply concerns and China's demand for raw materials is expected to remain robust. All this points to more gains -- along with the kind of volatility that has hit corn markets.

Corn swung 59 cents in the past two days, with news that China is clamping down on imports into bonded zones on concern that overseas purchases are out of control, prompting several feed mills to cancel U.S. shipments. On Tuesday, corn had its steepest drop in almost six years. Corn rebounded Wednesday as traders determined the scrapped cargoes weren't substantial and on widespread belief that China's demand for grain imports will continue.

Among prices on Thursday, copper on the London Metal Exchange was up almost 1% to $10,044.50 a ton, while wheat was steady around $6.50 a bushel and corn lost 0.2% to $6.23 3/4 a bushel. Soybeans fell for a ninth day, heading for their worst daily run since January 2020.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement