Commodities started falling steadily after China reported its first death from the coronavirus in January and began taking steps to curb its spread, slowing the country’s economy early in the year. While stocks held up well at that time, materials fell because China is a critical source of demand, accounting for about half of global consumption of some commodities like copper.

As the virus has spread to other countries, from Italy to South Korea, commodities have fallen alongside global stocks, sending the S&P 500 down 13% in the past seven trading sessions. The pain has extended to agricultural commodities including sugar and cotton.

The broad selloff is a major concern for some analysts because commodity prices can provide a real-time indicator of activity in the world economy. The current slide reflects slumping demand and bloated inventories, a recipe for excess supply. Some investors worry the widespread selling of assets associated with risk also portends more pain ahead for stocks.

“We know there’s going to be continued volatility,” said Shannon Saccocia, chief investment officer of Boston Private, which has been maintaining a smaller position in stocks than the benchmark it tracks. “With this uncertainty, you’re not really sure what the best place to hide would be.”

In addition to monitoring the spread of the virus, investors this week will be watching purchasing managers index figures and data on U.S. hiring for February to gauge how much the world economy might slow this year.

Some analysts say the longest-ever U.S. economic expansion is already in jeopardy. As U.S. crude oil skidded last week to its lowest level since December 2018, ending Friday at $44.76 a barrel, natural gas also extended a monthslong fall. Natural-gas futures dropped to a nearly four-year low of $1.68 a million British thermal units.

The declines have been a boon for consumers who are paying less for gasoline at the pump and to heat their homes with natural gas this winter. But they are also threatening profits for energy-producing companies and nations like Saudi Arabia, some of which need higher prices to sustain their economies.

“We see the oil and gas market as fundamentally oversupplied, with demand even further impacted by the coronavirus,” Continental Resources Inc. Executive Chairman Harold Hamm said on the company’s earnings call Thursday. Shares of the company are down 45% so far this year.

Donald Morton, a senior vice president at Herbert J. Sims & Co. who oversees an energy trading desk in Haverhill, Mass., said he struggles to remember demand fears this severe in energy markets since the financial crisis more than a decade ago. While he thinks the drop has gone too far, he said the negative sentiment could keep prices down until the virus fears ebb.

“What’s occurring is pretty dramatic,” he said. “I don’t think the price today is reflecting reality.”

Hedge funds and other speculative investors have dramatically reduced net bets on higher U.S. crude oil prices and recently pushed them to a four-month low, Commodity Futures Trading Commission figures show. At the same time, they have ramped up bets on lower prices of natural gas and copper.

Many analysts expect the Organization of the Petroleum Exporting Countries to deepen recent production cuts at a coming meeting, a move that could help stabilize oil prices if efforts to curb the spread of the coronavirus are successful. Still, steady shale output from the U.S. and production from nations outside OPEC have many traders preparing for oil inventories to remain well supplied moving forward.

With the declines in stocks and commodities accelerating, investors have favored safer assets, including gold and bonds that tend to hold their value during times of market turmoil. That trend pushed gold to its highest level in seven years last week and sent the ratio of gold prices to oil prices to its highest point since early 2016. During that selloff four years ago, fears that an economic slowdown in China would spark a recession pushed crude prices below $30 a barrel.

But the recent market chaos even engulfed gold late last week, sending prices down 4.6% Friday. Traders said investors were being forced to cover losses from stocks. Another explanation: margin calls from banks to investors who had used some of their stock portfolios as collateral to buy other securities. With the value of those positions shrinking substantially, banks can demand repayment.

Still, oil and other commodities went on to recover from the 2016 tumble alongside stocks, and some traders are hopeful that they can stage a similar recovery.

“We see a lot of commodities that are now into the oversold category,” Mr. Morton said.”

(Amrith Ramkumar)

Tags: commodities, coronavírus, Copper , Sugar, Aluminum , Investors, Oil, Iron ore, Economy’s , Trading, market