The rout in emerging markets is starting to spill into commodities, with coal prices tumbling as much as 10 percent this month as utilities in developing economies slash orders.
Commodity price developments often go together with growth in emerging economies, which consume more energy as their wealth rises.
“Commodity demand is more concentrated in fast-growing countries… The marginal buyer of commodities is the emerging world and it’s going through a bear market,” Charlie Morris at HSBC Global Asset Management said. “Commodities will have a bad time for much of this year.”
Hardest hit has been thermal coal as it is closely linked to the industrialisation of emerging economies, being the cheapest fuel to generate electricity.
Slowing growth in recent months has reduced demand in many emerging economies, and weakening currencies have made dollar-traded imports costlier, leading to a drop in orders. As a result, major coal exporter South Africa is seeing a sharp drop in demand from its main buyer India, pulling down physical coal prices by almost 8 percent in the past 10 days.
“People see India cutting back on coal purchases and thermal coal prices might come down further,” said George Cheveley at Investec Asset Management. He added that coking coal prices had also been affected. – Reuters