A worker installs a copper water pipe under the Eastern Market Metro Plaza in Washington, DC during a renovation project on Monday, April 5, 2021.

Tom Williams | CQ Roll Call, Inc. | Getty Images

Commodity prices fell sharply on Thursday, generating months of gains and dragging equity markets as China takes steps to cool rising prices and the US dollar strengthens.

The decline in commodities was widespread, with forward prices for palladium and platinum falling more than 11% and 7%, respectively, while corn futures fell more than 5% and copper-linked contracts fell 4%. The oil price also fell by more than 2%.

Thursday’s move continued a decline that began earlier in the week, thanks in part to measures taken by Chinese regulators.

According to Reuters, a Chinese government agency on Wednesday announced a plan to release reserves of key metals, including copper and aluminum. Officials in the country have also warned against speculation in the financial markets in recent weeks.

“Base metal prices are melting as China’s State Council escalates its crackdown on commodity speculators and hoarders through investigations [state-owned enterprises]”Foreign positions and testing of futures firms to tackle tight profit margins,” said Daniel Ghali, commodities strategist at TD Securities, in a note. “While foreign positions are harder to control with warnings, this raid still has some bite. “

The Federal Reserve’s increased inflation and rate hike forecasts on Wednesday could also add to the decline, putting upward pressure on the dollar and signaling that the central bank is closely monitoring the rise in prices. The dollar index, which measures the greenback against a basket of currencies, has risen about 1.6% since the Fed’s updated forecasts were released. Commodities often develop in the opposite direction to the greenback, as they are mostly valued in US dollars worldwide.

“The US dollar is likely reacting to yesterday’s rise in bond yields and the prospect of an earlier throttling that would slow the supply of US dollars, which has led to a significant drop in commodity prices across the board,” said Jim Paulsen of der Leuthold Group told CNBCCN. “Commodities have been a popular investment over the last year as investors have added some inflation protection to their portfolio.”

In addition, UBS’s Art Cashin said on CNBC’s “Squawk on the Street” that tightening monetary and fiscal policies by the Chinese government could create selling pressure on commodities.

The decline comes after a strong first half for commodities fueled by increased industrial demand as the U.S. and other economies began reopening Covid cases.

This rapid rise in prices may have ripe some of the commodity markets for a quick retreat. Evercore ISI technical analyst Rick Ross said in a statement Thursday that copper appears to have been at “overbought” levels since 2006.

The weakness for commodities spread to the stock market on Thursday, taking a bite out of energy and mining stocks.

“The rumors since March that CN’s State Reserve Bureau (SRB) would bring reserves of non-ferrous metals to market came true on June 16. In connection with the Fed rate decision on June 17th (after the strong PPI in May ) Most new energy commodity stocks fell, down 5-10% overnight, “Jefferies investment firm said in a statement to clients.

Shares in the Global X Copper Miners ETF lost more than 7% in midday trading, while Alcoa and US Steel lost 6.5% and 8%, respectively.

The commodities market had already experienced unusual volatility before the recent sell-off in 2021, with lumber and corn prices being two examples of markets where prices had climbed to historic levels before losing pace. Wood futures, which have been sliding for more than a month, fell another 1.8% on Thursday.

– CNBC’s Michael Bloom and Maggie Fitzgerald contributed to this report.

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