Commodity Prices Hit Hard by US Tapering News Within the Year

Raw Material Index Falls 5% This Month... Double Whammy of Demand Slowdown and Strong Dollar

[Asia Economy Reporter Byunghee Park] As the U.S. central bank, the Federal Reserve (Fed), is expected to begin tapering (reducing asset purchases) within this year, commodity prices are plummeting. This is because Fed's tapering is anticipated to slow down the U.S. economic growth rate, causing the commodity market to face a double burden of demand slowdown and a stronger dollar.

Bloomberg reported on the 19th (local time) that the Bloomberg Commodity Index has fallen nearly 5% just this month, marking the worst performance since the World Health Organization (WHO) declared the COVID-19 pandemic in March last year.

On the same day, crude oil futures prices fell for six consecutive trading days, dropping to their lowest level since May. This six-day consecutive decline in crude oil futures prices is the first in 18 months. On the New York Mercantile Exchange (NYMEX), September West Texas Intermediate (WTI) crude oil futures closed at $63.69 per barrel, down $1.77 (2.7%) from the previous day.

Copper futures prices, considered a barometer of economic conditions, also plunged to their lowest level since April. The London Metal Exchange (LME) 3-month copper futures closed at $8,894 per ton, down 1.6% from the previous day. During the session, prices fell to $8,740 per ton, the lowest since April 1. Copper futures prices have dropped more than 7% just this week. Compared to the all-time high of over $10,700 reached in May, this represents a decline of about 17%. LME tin futures prices plunged 6.4%, while zinc and aluminum prices fell 1.12% and 0.37%, respectively.

Bart Merek, investment strategist at TD Securities, explained, "All commodity prices are falling due to concerns that liquidity will decrease as a result of the Fed's tapering."

Amid the spread of the COVID-19 Delta variant, the outlook that the U.S. economic growth rate will slow down due to the Fed's tapering is also a negative factor for the commodity market. Goldman Sachs lowered its forecast for U.S. economic growth this year from 6.4% to 6.0% on the 18th.

The slowdown in U.S. economic growth adds insult to injury for the commodity market. It not only reduces commodity demand but also raises the value of the dollar due to increased preference for safe-haven assets.

This content was produced with the assistance of AI translation services.