Commodities see worst January in 24 years as China slows down

Sure, 2015 was a bad year for commodities. So far, 2016 is even worse.

The Bloomberg Commodity Index, a measure of returns for 22 raw materials, has tumbled more than 4 per cent in 2016. That’s the worst start to a year since the comparable data begins in 1992. Hedge funds are positioning for more losses, holding the biggest netshort bet across raw materials since at least 2006.

China’s slowing economy is partly to blame. The Asian country unexpectedly devalued its currency, fanning concern that growth will be worse than expected. The yuan move sparked global market turmoil and sent investors to the haven of the dollar, cutting the appeal of raw materials as a store of value. With most energy, agriculture and metal products plagued by excess supplies, prices retreated in 2015 for a record fifth straight year. "We’re in a vicious cycle for commodities," said Quincy M Krosby, market strategist at Prudential Financial, which oversees about $1.2 trillion, said. "With the yuan depreciation, you’ve seen more dollar strength, which is negative for commodities. And underpinning all that is the idea that the economic background in China is worse off than people thought. There’s a lot of questions about what will happen with demand, and markets do not like uncertainty."

The Bloomberg Commodity Index dropped on Monday for the fourth time in six sessions touching 74.89, the lowest since 1999. The gauge is trading close to its record low of 74.2411 reached that year. Crude oil dropped to a 12-year low on Monday, and copper fell to its cheapest since 2009. The decline for prices is dragging down commodity companies.