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Weakened Economy of China and Weak Oil Industry Killing Commodity Stocks

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Published on : Jul 16, 2015

Commodity stocks are facing brutal times due to the combined effects of a weakened stock market of China and the continuing weakness observed in the global oil market.

Stocks of metals are seeing a continuous low, with steel stocks such as US Steel, AK Steel, and Allegheny Tech down 7 percent.  The steel market is awash with overt steel exports of China. 

The current weakness in China’s economy is affecting many other industries as well. Only last night, Sweden’s SKF, the world’s largest manufacturers of ball bearings, said that a huge recession in China’s auto output will lead to a huge loss of revenues.

The continuing weakness in oil is also terribly affecting the markets. The $50 average price of oil in the global market is simply unsustainable for the industry for even a small duration. The world is seeing a continuous oversupply even as inventory levels indicate a modest reduction. The concerns of oversupply are multiplied when one looks at the modest demands.

Overall stocks of oil production, exploration and processing companies are seeing a downturn. Drillers like Transocean have marked a reduction of 4 per cent, stocks of Halliburton, an oil service company, have gone down by 3.2 percent. Stocks of production and exploration companies such as Denbury and Pioneer Natural Resources have seen reduction by 3 to 4 percent.

BHP Billiton came ahead as the latest company to write down its business of U.S. onshore petroleum by nearly $2 billion. Looking at the current state of this market, more businesses are expected to tread along the same path.

It is not clear when the demands will resume to normal and the constant state of overproduction will come to normal. Until then, the oil industry and commodity stocks are expected continue facing the same unrest as now.