The prices of commodities were falling sharply on Thursday, cutting into months of gains and weighing on equity markets, as China takes steps to cool off rising prices and the U.S. dollar strengthens. The decline in commodities was widespread, with futures prices for palladium and platinum falling more than 11% and 7%, respectively, along with declines of more than 5% for corn futures and 4% for contracts tied to copper. Oil prices were also down more than 2%.
Thursday’s move continued a slide that began earlier in the week, thanks in part to actions by Chinese regulators. A Chinese government agency announced a plan on Wednesday to release reserves of key metals, including copper and aluminum, according to Reuters. Officials in the country have also warned about speculation in financial markets in recent weeks.
“Base metals prices are melting as China’s State Council escalates its crackdown against commodity speculators and hoarders by investigating [state-owned enterprises]′ overseas positions and auditing futures firms to combat squeezed profit margins,” said Daniel Ghali, TD Securities commodities strategist, in a note. “While overseas positions are harder to police with warnings, this crackdown still has some bite,”
The Federal Reserve’s increased projections for inflation and rate hikes from Wednesday also could be contributing to the decline by putting upward pressure on the dollar and signaling that the central bank is closely following the rise in prices. The dollar index, which measures the greenback against a basket of currencies, has risen about 1.6% since Fed’s updated projections were released. Commodities often move inversely to the greenback since they are mostly priced in U.S. dollars globally.