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Even before Monday’s commodities plunge, China was struggling with overcapacity in its steel industry, dealing with rock-bottom prices.Damir Sagolj/Reuters

Copper, aluminum, nickel and other commodities plunged to new lows on fears that China's faltering economy will exacerbate a market awash in metal.

The latest event to spook investors was the steep decline in Chinese stocks earlier on Monday. Copper and aluminum hit six-year lows. Nickel plunged 10 per cent. Zinc and lead dropped to five-year lows. Gold, usually a safe haven in times of turmoil, barely rose.

"All bad news is bad news and good news is no news. That's the environment we are in," said Jessica Fung, commodity strategist with BMO Nesbitt Burns.

Once the engine behind the bull market in commodities, China's slowdown is wreaking havoc across the mining complex.

There is less and less confidence that the world's second-largest economy will reach its 7.5-per-cent growth rate target. Recent data showed a decline in China's manufacturing sector, a top consumer of metals such as aluminum and steel. China's recent yuan devaluation heightened concerns that its economy is worse than previously thought. Monday's 8.5-per-cent selloff on the Shanghai composite index shattered investor confidence and sent global markets into a tailspin. This comes after five years of slowing economic growth in China, the world's largest consumer of raw materials.

"There is a contingency out there who think that the Chinese government may no longer have the same type of powers to re-energize the economy," said Bart Melek, head of commodity strategy with Toronto-Dominion Bank. "If that is the case, then we could see significantly lower economic performance in China."

China is already wrestling with overcapacity in its steel industry. It exported 50 per cent more steel last year and is on track to export even more this year. Instead of shutting down some of the higher-cost mining operations, China has kept them running. That has contributed to the glut of steel and rock-bottom prices.

The prices for iron ore and metallurgical coal, both used to make steel, have been decimated. Over a four-year period, both minerals have lost 70 per cent of their value. Now the rout is spreading to other commodities.

On Monday, nickel fell to $4.29 (U.S.) a pound, well below its $13 price four years ago. Aluminum traded at 68 cents a pound, compared with about $1.20 in 2011. Copper, seen as an economic indicator because it is used in all sectors from construction to electronics, traded as low as $2.20 a pound compared with more than $4 in 2011.

"The copper price is out of equilibrium at these levels and would lead to substantial production cuts in the sector if it stays here much longer," said David Garofalo, chief executive officer of copper company HudBay Minerals Inc.

The headache for the mining industry is how to deal with the surplus. In Canada, some companies are scaling back production and shelving projects. Teck Resources Ltd. suspended output for three weeks at its metallurgical coal mines in Western Canada this summer. Cliffs Natural Resources Inc. shuttered two iron ore mines in Eastern Canada.

But companies that spent billions of dollars expanding operations to meet China's needs are reluctant to slow production after investing the capital.

The Bloomberg commodity index of raw materials fell to its lowest level in 16 years on Monday . Canadian base metal miners Teck, HudBay, Lundin Mining Corp. and Capstone Mining Corp. all lost more than 7 per cent of their value.