Oil and copper fell sharply and gold slipped on Thursday as investors worried that China will move to cool its booming economy, the engine of commodity demand growth this decade.
China reported its economy grew 9.8 per cent in the fourth quarter, even faster than expected, while inflation barely slowed. This raised fears the government will tighten monetary policy to choke off excessive demand.
"The Chinese economy is clearly growing even faster than people thought it was," said Peter Buchanan, senior economist at CIBC World Markets in Toronto.
"There is a risk that as the emerging economy governments try to cool things we could see demand for commodities get hit, not just in China but in other centers of growth like India as well."
Copper prices were down 2.6 per cent at $9,355.15 a tonne by 4.00 p.m. EST. The red metal hit a record high Wednesday, driven by supply concerns and huge demand from China's construction industry.
Oil prices, which surpassed $90 a barrel at the turn of the year in part on China's rapidly growing thirst for crude, also slid. U.S. crude futures settled down 2.2 per cent at $88.86 a barrel, the lowest close in 10 days.
Prices were also hit by a surprise rise in U.S. crude inventories on Thursday.
But few analysts or traders said this was the start of a larger correction in commodities.
Wayne Atwell, managing director of New York-based investment bank Casimir Capital LP said oil and copper were still in an uptrend.
"For us this is a healthy correction in a bull-market," Atwell said.
"Prices have risen strongly in recent months so it's not surprising to see some traders taking profits when concerns about China emerge, but we don't think any impact on demand will be large enough to derail the uptrend."
AGRICULTURAL COMMODITIES BOUNCE UP
A rebounding dollar also pressured commodities priced in the greenback, after data showed a larger-than-expected drop in U.S. jobless claims and a jump in home sales in December. This gave investors hope for an economic rebound.
Gold fell to a two-month low of $1,342.64 an ounce as the dollar rose and investment demand for the precious metal waned. But gold pared losses in the afternoon and was trading down 1.8 per cent at $1,344.90 an ounce.
Chinese President Hu Jintao traveled to Chicago, heart of the U.S. agricultural commodity trade and the only city he will visit outside of Washington on his U.S. trip this week.
Agricultural commodities initially declined with the rest of the sector in the wake of the Chinese data, but buyers emerged in corn and wheat to push prices higher on the day.
Traders cited strong interest from both end users and investors, with wheat prices up by almost 90 per cent since last June.
But analysts said nerves were still on edge, with corn prices hitting the highest since July 2008 last week.
March wheat on the Chicago Board of Trade settled up 0.8 per cent at $8.03-1/2 a bushel, while corn rose 2 per cent to $6.54 a bushel.
China is expected to buy feed wheat from the United States this year, a direct competitor to corn widely used to feed China's massive hog population.
While doubts have emerged in the last two days after China began buying feed wheat from Australia, traders said it was still likely to tap U.S. markets.
"China's government's move to control inflation is certainly a fear of many bulls at these high prices," said Dustin Johnson, an analyst for Iowa Grain.
Soy dropped as much as 2 per cent, with pressure coming from rainfall this week in dry areas of Argentina, but reversed as other agricultural commodities rallied to finish up 0.3 per cent on the day.