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Chinese Selloff Contributes to Commodities Rout

The bear market in China is roaring.

Since the bull market peaked on June 12, the Shanghai Composite has tumbled over 30%. This is the worst three-week posting for the index since 1992.

Nearly $2.5 trillion in market value was wiped out!

The sudden, sharp decline in stocks is now calling into question Chinese economic growth. And its voracious appetite for all sorts of commodities.

Of course, demand from China was already coming into question as the country’s steel production in the first quarter declined for the first time in 20 years.

It’s this questioning of the whole China-commodities equation that led to the S&P GSCI Index falling to the lowest level since April. The July 7 drop was also the steepest one-day decline since November.

Dropping Down the Rout

The actual numbers are not pretty.

An index of base metals traded in London hit its lowest level since 2009. The worst among the base metals were copper, which went down over 4%, and nickel, which fell nearly 7%.

It wasn’t much prettier in the precious metals markets. Gold went down 2% and hit a 15-week low. Silver tanked by 6%.

The oil bulls also got hit, with crude posting its steepest loss in three months on Monday. West Texas Intermediate finished at $52.53. Oil neared bear market territory Tuesday before recording a bit of a rebound.

Worry Tanks Commodity Markets: Commodity Stocks Rebased January 1, 2015=0

China’s Gluttony

For decades now, China has been the 800-pound gorilla in many commodities markets. The country is considered the father of the commodity supercycle.

China’s share of the world’s metals market grew from just 12% in 2000 to about 50% today. The rise was led by iron ore. Demand for the metal rose a whopping five-fold.

The chart below gives just a small indication of China’s impact.

The Insatiable Chinese Appetite: China's Share of Global Consumption

The only question now is whether this gorilla, with a huge appetite, will go on a diet?

And the chase continues,

Tim Maverick

Tim Maverick

, Senior Correspondent

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