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Commodities recover ground after China-led rout

Tuesday, August 25, 2015 - 14:54
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Prices of crude oil and most other commodities rebounded in Asia Tuesday but stayed under pressure following a global sell-off sparked by the faltering economy in China, the world's top user of industrial metals and energy.

[SINGAPORE] Prices of crude oil and most other commodities rebounded in Asia Tuesday but stayed under pressure following a global sell-off sparked by the faltering economy in China, the world's top user of industrial metals and energy.

US benchmark West Texas Intermediate (WTI) for October delivery was trading at US$38.92 in afternoon Asian trade after closing at US$38.24 a barrel on the New York Mercantile Exchange, its first below-US$40 close since Feb 2009.

Brent North Sea crude for October, the international benchmark, was at US$43.31 a barrel after closing at US$42.69 a barrel in London, its lowest level since March 2009.

The Bloomberg Commodity Index, which tracks 22 raw materials, was up 0.14 per cent to 85.9723, after losing 2.2 per cent on Monday to close at its lowest point since Aug 1999.

"There is some stability in crude and commodities in Asian trading after the global rout but I am not holding my breath that it will last," said Bernard Aw, market strategist at IG Markets in Singapore.

"The main catalyst for the market today will be if and when the Chinese authorities are going to intervene further to stabilise the volatility in the equities market," he told AFP.

"Market participants remained gripped by fear... slowing global growth, commodity slumps, deflation risks, Chinese slowdown, timing of the Fed hike are all possible drivers of fear," he added.

Nicholas Teo, market strategist at CMC Markets in Singapore, said that "a market rebound of two, three, four or even five per cent are common tales in a bear market".

World equity markets have seen some US$5 trillion wiped off their value since China's surprise devaluation of the yuan on Aug 11 fuelled fears the world's second-largest economy is weaker than thought.

Chinese shares have been extremely volatile since a huge debt-fuelled rally, which saw the market rise 150 per cent in 12 months, collapsed in mid-June prompting Beijing to unleash unprecedented measures to support the equity market.

Investors fear China's faltering economy will curb demand for industrial materials that have helped feed its astonishing growth in recent years.

On oil markets, a drop in buying from China, the number-one energy importer, could be catastrophic at a time when international markets are already heavily oversupplied and could soon see resurgent production from Iran after its nuclear deal.

"None of the support for oil are holding strong enough to reverse the current bearish momentum," said Daniel Ang, investment analyst at Phillip Futures in Singapore.

"We believe that the lows of US$32.40 and US$36.20 for WTI and Brent could be a floor and would think that prices should hold there," Ang added.

Gold prices remained steady, boosted by prospects of increased demand due to its status as a safe haven in times of turmoil.

Bullion for immediate delivery rose 0.1 per cent to US$1,156.01 an ounce in Singapore morning trade, according to Bloomberg generic pricing, after declining 0.5 per cent on Monday.

Resources stocks recovered slightly after tumbling on Monday. BHP Billiton closed 1.97 per cent higher at Aus$23.34 while Fortescue was up 9.48 per cent at Aus$1.79.

AFP