Commodities fall as China moves to slow inflation

Dropping oil, copper and gold prices push dollar lower

January 14, 2011
by Purchasing b2b staff

TORONTO: Commodity prices fell sharply after China’s central bank raised the amount of money banks must keep on reserve for the seventh time in a year.

Falling prices for oil, copper and gold helped push the Canadian dollar lower against the US dollar, down 0.73 of a cent to 100.32 cents US.

In an effort to halt inflation, China’s central bank raised by 0.5 percent the amount of money banks must keep on reserve, effective January 20. China’s inflation rate jumped to a 28-month high of 5.1 percent in November.

With an economy that’s growing at 10 to 12 percent a year, China is the world’s largest purchaser of commodities such as copper, nickel, stainless steel and carbon steel, said Ron Sherkin, owner of Propurchaser News Services.

“Virtually anything that’s a staple commodity, whether it’s a metal or a food, China is the largest consumer,” he said. “If Chinese demand is slightly dampened—even by three to five percent—that could have a huge effect on the price of soy beans, the price of steel or the price of nickel.”

Investors have usually reacted negatively to China’s moves to slow the economy, since strong demand from that country and other emerging markets was largely responsible for the resource-heavy TSX gaining 14 percent in 2010.

Oil prices retreated with the February contract on the New York Mercantile Exchange, down 82 cents to US$90.58 a barrel.

Gold stocks will likely feel the effect of sharply lower bullion prices with the February contract on the Nymex, down $23.10 to US$1,363.90 an ounce.

The March copper contract in New York was off a penny to US$4.36 a pound.