Warning Signs From Commodity Prices

For many consumers and businesses the recent drop in commodity prices has provided a tidy windfall — one analyst estimated that the typical American household would save $400 a year thanks to lower gasoline prices. But the tumbling price of fuels, metals and other commodities is also sending a warning about the global economy.

Over all, commodity prices have fallen nearly 15 percent since late June, according to a Bloomberg index. Last week, the price of crude oil dropped to a four-year low, about $74 a barrel, down from about $107 a barrel in June. The prices of metals like copper, platinum and silver have also fallen sharply since the summer.

The decline can partly be explained by economic changes taking place in China. In the last two decades, the country has been gobbling up the world’s coal, iron ore, copper, oil and other commodities to build new cities and fuel its booming economy, which grew at an average pace of nearly 10 percent a year for three decades. But that growth rate has now slowed, and with it China’s demand for raw materials. This year, the country will grow at 7.4 percent, according to the International Monetary Fund.

The world had anticipated China’s economic transition, but it was much less prepared for stagnation in Japan and in much of Europe.

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