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    Sep 30, 2015

    Commodity, energy stocks hit by sell-off


    SHARES in commodity trading firms took another tumble yesterday, driving global stocks to their lowest in more than two years as pressure built on raw materials prices and emerging markets.

    Falling energy and raw material prices also claimed new victims: A Japanese shipper filed for bankruptcy yesterday and global trading group Louis Dreyfus Commodities B. V. posted lower profits.

    Giant mining and trading firm Glencore, whose shares fell by almost a third on Monday on investor concern over its debt levels, eked out gains of 9 per cent in early London trade but only after its Hong Kong-listed shares fell more than 30 per cent.

    Australian energy shares also tumbled, with Santos, Origin Energy and Karoon Gas all losing around a tenth of their stock market value.

    "There is a crisis of confidence and people are continuing to de-leverage commodity stocks exposure," said Benjamin Chang, chief executive of hedge fund LBN Advisers, which manages about US$600 million (S$857 million) in funds.

    Investors sold off Glencore bonds, highlighting nerves over its debt burden and financial situation.

    Glencore has been afflicted by the same issue facing other miners: the prolonged fall in global metals prices caused partly by a slowdown in China, which is the world's biggest consumer of metals.

    Energy and commodity prices have fallen largely because of rising output following heavy investment into new assets while prices were still high, which has increasingly clashed with slowing demand in Asia, where China's economy is growing at its slowest pace in decades.

    The problems in the sector contributed to Louis Dreyfus reporting a steep drop in first-half profits yesterday.

    The crisis has also hit the shipping sector, where dry-bulk merchant Daiichi Chuo Kisen Kaisha filed for protection from creditors yesterday.

    Glencore's shares remain down by more than 80 per cent since it listed in 2011, at the last high point of a long commodities boom, with its market capitalisation briefly dipping below £10 billion (S$22 billion) for the first time.

    Some traders were wary of buying into commodity stocks. "It is hard to make a case for buying commodity stocks in general with the current climate in China and emerging market volatility," said Thames Capital Markets' senior trader Gerren O'Neill.

    European shares opened lower, following a slide to 31/2-year lows in Asia caused by concerns a slowdown in China will dent its previously massive demand for commodities.

    Emerging equities dropped 1 per cent while sovereign dollar bond yield spreads hit 61/2-year highs on doubts about the credit worthiness of commodity exporting countries and companies.

    Copper lost 0.4 per cent after hitting a one-month low below US$5,000 a tonne on Monday. It last traded at US$4,945, within reach of a 61/2-year low below US$4,855.

    Platinum fell below US$900 an ounce for the first time since 2009, on fears that the emissions scandal embroiling German carmaker Volkswagen could hit demand from the auto sector.

    Gold fell 0.4 per cent to US$1,126.60 an ounce on worries United States interest rates could rise later this year.

    Commodity-linked currencies were hit hard, with the Australian dollar trading near 61/2-year lows before recovering. Instead, investors sought safety in the Japanese yen and Swiss franc, which traditionally do well in times of uncertainty.

    "Everybody is looking at stock prices for trading clues. Those who usually love to look at interest rate gaps are also watching stocks," said Masatoshi Omata, senior client manager at Resona Bank.