The Strong Dollar Weighs Heavily on the Commodities Market

Early in 2014, the commodities markets were doing surprisingly well. China’s appetite for raw material was holding up, and the International Monetary Fund was predicting a decent year of global growth, which meant rising demand for everything from oil to cotton. Then the spell broke. In July, China reported lower imports of oil and copper. Since the country is the largest consumer of pretty much everything that’s pumped or mined out of the ground, the news sent prices of commodities sliding. On Oct. 2, oil fell below $90 a barrel for the first time in 17 months. Global growth was stalling, and the commodity companies were faced with much lower demand than they’d anticipated in January.

The biggest problem is that China’s stimulus measures have failed to boost economic growth. The first three rules of commodities demand, according to Quincy Krosby, a market strategist at Prudential Financial, are “China, China, China.” The last decade’s spectacular rally—evidenced by the Bloomberg Commodity Index, which almost tripled from the start of 2002 through 2008—hinged on double-digit Chinese growth, she says. That pace has fizzled now that the world’s second-largest economy is heading for its slowest expansion in two decades.