Commodity Prices Crushed by Fear of Economic Recession

"Corn, Wheat, and Soybean Futures Plunge Amid 'Demand Slowdown' Concerns... Food Crisis May Peak
Iron Ore Prices Halved Due to Construction Slowdown... Battery Material Cobalt Hits Lowest Since January"

[Asia Economy Reporter Park Byung-hee] The global economic recession fears have begun casting dark clouds over the once booming commodity markets. Commodity prices, which had been hitting historic highs daily due to supply chain disruptions and the aftermath of the Ukraine war, have recently shown a clear downward trend.

◆ Has the global food crisis peaked? = According to Bloomberg News, grain prices such as corn, wheat, and soybean oil plunged at the Chicago Board of Trade (CBOE) in the United States, which reopened on the 21st (local time) after the Juneteenth holiday.

On that day, wheat prices fell below $10 per bushel for the first time since early April. It closed at $9.7525 per bushel, down 5.7% from the previous trading day.

Corn futures prices dropped as much as 5% intraday, falling to $6.9425 per bushel, the lowest since March. Soybean prices declined 1.2%, reaching their lowest level since February.

Consulting firm Acritel diagnosed that fears of an economic recession are weighing down commodity prices. Concerns are growing that demand for commodities will weaken as consumption contracts due to economic slowdown fears.

Concerns about crop conditions in major grain-exporting countries and difficulties in Ukrainian grain exports due to the war with Russia are also contributing factors to the decline in grain prices.

Meanwhile, some forecasts suggest that the drop in grain prices may ease inflationary pressures on food prices. Chua Hak Bin, an economist at Maybank Group, stated, "This could be a sign that the global food crisis has reached its peak."

◆ Iron ore halved in a year: a harbinger of recession = However, there is also analysis that the decline in commodity prices spreading beyond grains to all sectors could be a precursor to a recession.

The price of iron ore, a representative industrial raw material, has fallen to half of what it was a year ago. According to S&P Global Platts, iron ore prices plunged 8% that day, dropping to $111.35 per ton, the lowest in six months. Around this time last year, expectations for economic recovery after COVID-19 had driven iron ore prices above $230 per ton. Iron ore prices have fallen for nine consecutive trading days, wiping out all gains made this year. The market expects iron ore prices to fall below $100 per ton for the first time since November last year.

Colin Hamilton, head of commodities at BMO Capital Markets, said, "As the construction sector slows down, construction companies are halting orders, leading steel producers to reduce production."

The price of cobalt, a key material for electric vehicle batteries, is also plummeting. Market research firm Fastmarkets reported that the global benchmark price for cobalt was $34.5 per pound, the lowest since January. The decline in demand for electric vehicles and mobile phones is cited as the cause of the cobalt price drop.

Cobalt prices are falling sharply in both Europe and China. European cobalt prices have dropped 13% since their peak in May. The price decline is even more severe in China, the world's largest electric vehicle market. Due to the Chinese government's strict COVID-19 lockdown measures, some factories were shut down last month, causing cobalt prices in the Chinese market to fall by 37% since March.

◆ Will oil prices fall too? = Unlike other commodities, international oil prices closed higher that day. On the New York Mercantile Exchange (NYMEX), July West Texas Intermediate (WTI) crude oil futures closed at $110.65 per barrel, up $1.09 from the previous trading day.

However, analysts say this is largely a rebound buying following last week's excessive decline. WTI rose to $122.11 per barrel on the 8th but plunged last week amid growing recession fears. On the 17th, just before the holiday, it recorded a sharp 6.8% drop in a single day.

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