Commodities slide as US-China spat hits soy to steelmakers

Bloomberg

A rout in commodities deepened as the threat of a trade war between the world’s two biggest economies intensified, hitting markets from steelmakers to soybeans.
As the tit-for-tat trade dispute between the US and China stepped up, a Bloomberg gauge of commodities fell to the lowest since early April, with agriculture being the worst hit. Almost all raw materials fell after President Donald Trump threatened tariffs on another $200 billion of Chinese goods.
A Bloomberg agriculture index fell to the lowest since at least 1991, while global mining stocks sank to the lowest in 18 months. Industrial metals fell, with copper, nickel and zinc all giving up more than 2 percent.
The spat is upending commodities markets that as recently as last month had climbed to an almost three-year high on signs of a strengthening global economy. China, the biggest raw-materials buyer and a key destination for some US farm goods, vowed to retaliate “forcefully” against Trump’s threatened tariffs.
“The escalating trade dispute between the US and China is putting noticeable pressure on grain and oilseed prices,” Commerzbank AG said in a note. “Sentiment among market participants is becoming noticeably gloomier, stock markets are falling, cyclical commodities such as base metals are under pressure.”
Soybeans led a slump among US agricultural commodities, falling as much as 2.8 percent to the lowest in two years. The oilseed is the largest single American agricultural export to China, a trade valued at about $12 billion last year. Chinese demand for soy has surged in recent decades as the country uses more of it as food for hogs.
Agriculture has been a key battleground in the deepening trade dispute. By focussing on agriculture and energy, China is targeting rural communities in states that voted for Trump in 2016. As recently as May, the Asian nation said it would seek to buy more US agricultural and energy products as part of a tentative trade truce between the two countries.
“Hopes of higher US soybean shipments to China have been quashed by the retaliatory tariffs,” Commerzbank said. “The US will doubtless have a hard time finding alternative consumers without offering significant discounts.”
Soybeans for November delivery were down 2.5 percent at $9.08 1/2 a bushel in Chicago. Prices have also come under pressure after US farmers reaped a record crop in 2017 and growing conditions so far this season have been favorable. Corn slipped to the lowest since February, while wheat and cotton also dropped.