Chinese Defeat Spreads New Areas

Copper, aluminum, nickel and other commodities tumbled to new lows amid fears that China's faltering economy will cause the market to drown in metal. Copper and aluminum fell to six-year lows. Nickel fell 10 percent. Zinc and lead have slipped to five-year lows, while gold, which tends to be a haven during shocks, barely rallied.

There is less and less confidence that the world's second largest economy, China, will achieve its 7.5 percent growth target. The latest data showed a decline in the manufacturing sector in China, the largest consumer of metals such as aluminum and steel. The recent devaluation of the yuan, approved by the National Bank of China, only heightens concerns that the Chinese economy is worse than previously thought. The fall of the Shanghai index drove the world markets into a tailspin. This comes after five years of slowing economic growth in China, the world's largest consumer of raw materials.

China has long been struggling with overproduction in its steel industry. It doubled steel exports last year and is aiming to export even more this year. Instead of shutting down some of its low-value-added operations, China has kept them. This contributed to the oversaturation of the steel market and low prices for metal products.

The prices of iron ore and metallurgical coal, which are used to make steel, have been destroyed. Over the past four years, these minerals have lost 70 percent of their value. This trend is now spreading to other products as well. The falling price of base metals is an important economic indicator as they are used in all industries from construction to electronics.

For the mining industry, dealing with a surplus is a headache. In Canada and Australia, some companies are already phasing out production and started projects. But companies, which have spent billions of dollars expanding their operations to meet China's needs, are reluctant to slow down production after investing capital.