Commodities sink as China reignites growth fears

China’s economy will expand 3.25 per cent in 2022, short of authorities’ growth target of 5.5 per cent, according to the Reserve Bank.

The disappointing data reinforced that the country’s economic recovery, sparked by an easing of pandemic restrictions in Shanghai, has stalled, and further policy support is required to trigger a more sustained rebound.

“In our view, the impact of all the stimulus pledged so far is fairly limited. A small interest rate cut is insufficient to boost domestic demand,” said Raymond Yeung, ANZ’s chief economist for greater China.

“In addition, COVID-19 resurgences and the government’s stringent lockdown curbs will risk another economic downturn in the third quarter.”

The price of iron ore traded in the spot market tumbled 4.1 per cent to $US104.40 a tonne as evidence of falling steel production intensified concerns about demand for the raw materials.

China’s daily crude steel output fell 13 per cent in July compared to a month earlier, which coincided with negative steel mill margins worsening during the month.

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Softer demand

Commonwealth Bank’s mining analyst, Vivek Dhar, noted China’s steel output would decline from last year’s levels if the daily output remained the same between this month and Christmas.

“Given the policy objective to reduce China’s annual steel output this year, it may be the case that policymakers do not need to enforce steel output cuts this year,” Mr Dhar said. “That reduces a major headwind for iron ore prices.”

Anxiety about softer demand for raw materials also weighed on oil markets. West Texas Intermediate dropped a further 1.1 per cent to $US88.44 a barrel on Tuesday morning, after tumbling about 5 per cent over the previous two sessions.

China’s apparent oil demand fell 9.7 per cent year-on-year to 12.16 million barrels a day last month, according to data from China’s customs. Prices are now hovering around their lowest level since early February.

The prospect of softening demand was met fears about growing supply, as Libya pumps more oil into the market and Iran edges closer to reviving a nuclear deal which would spark higher flows of crude.

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Base metal markets were also broadly lower. Copper was down 1.4 per cent to $US7980 a tonne, nickel dropped 4.4 per cent to $US2201.30 a tonne, and aluminium tumbled 1.8 per cent to $US2390 a tonne.

China’s industrial production grew 3.8 per cent in July from a year earlier, below the 3.9 per cent expansion in June and the 4.3 per cent increase expected by analysts.

Retail sales, which only just returned to growth in June, rose 2.7 per cent from a year ago, missing forecasts for 4.9 per cent growth.

Gold wasn’t spared from the carnage, suffering its biggest single-day decline in over a month as investors flocked to the US dollar amid signs of an economic slowdown.

The precious metal was little changed on Tuesday morning after tumbling 1.3 per cent to $US1779.71 an ounce on Monday, its largest drop since July 14.

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