MELBOURNE • A slump in commodities deepened, with industrial metals and oil leading losses as the dollar extended gains.
Crude extended its drop below US$42 a barrel and copper fell to levels unseen since 2009 as comments from Federal Reserve officials about the prospect of a rate increase next month bolstered the greenback.
Nickel plunged 4.1 per cent and gold declined, helping to send the Bloomberg Commodity Index to a 16-year low.
"This is not a really welcoming environment for risk taking," said Mr Tim Condon, head of Asia research at ING Groep NV in Singapore. "Liquidity is beginning to dry up as people are waiting for what happens in December with the Fed. Worries about China persist."
The greenback's surge this year has weighed on material prices at the same time as demand slows in China, the world's biggest commodity consumer.
Mr John Williams, president of the Fed Bank of San Francisco, said at the weekend that there was a "strong case" for a US rate hike at the Fed's last meeting for this year.
Copper dipped 1.9 per cent to US$4,492 a ton on the London Metal Exchange yesterday, while nickel plunged as much as 5.7 per cent to the lowest since 2003. Gold for immediate delivery was down 0.6 per cent to US$1,072 an ounce.
Metals tied to China's huge steel sector were especially hard hit yesterday, with London zinc and London nickel plunging nearly 3 per cent and as much as 5 per cent, respectively.
Demand was unlikely to pick up ahead of the year-end, as producers and manufacturers conserve cash flow, rather than restocking ahead of the Christmas and New Year period, said analyst Helen Lau of Argonaut Securities.
"Further price weakness ahead seems likely," she said, noting that funds were selling copper because of signs of poor demand.
The break in US crude futures below US$40 a barrel exacerbated the pace of the selling, CMC Markets analyst Jasper Lawler said.
Big hedge funds have increased their bets that oil will continue to fall, according to data from the US Commodity Futures Trading Commission last week.
Speculators now hold more positions that are betting on a drop in the oil price than at any time since at least 2009, according to Reuters data.
In a sign of a possible boost in future demand, China is offering US$10 billion (S$14 billion) in infrastructure loans to South-east Asian countries, a senior Chinese foreign ministry official said on Sunday.
New steel and aluminium contracts being launched by the London Metal Exchange yesterday are expected to attract initial interest from customers, but building up strong liquidity in the current bear market may be challenging.