Money

Commodity price plunge sends the markets tumbling

By Irene Shen and Zhang Shidong (China Daily)
Updated: 2011-05-07 09:55

SHANGHAI - Stocks on the Chinese mainland fell on Friday, capping the longest stretch of weekly losses for the benchmark index this year. The retreat came as plunging commodity prices boosted concerns about a slowdown in the global economy.

China Shenhua Energy Co and PetroChina Co, the nation's biggest producers of coal and oil, retreated at least 1.6 percent after the Standard & Poor's GSCI index of 24 commodities dropped the most since 2009. Guangxi Wuzhou Zhongheng Group Co led an advance among health-care stocks after Shenyin & Wanguo Securities Co said profit growth for drugmakers may accelerate.

"Confidence in the stock market is very fragile," said Li Xunlei, an economist at Guotai Junan Securities Co, China's second-biggest brokerage by revenue. The drop in commodity prices has boosted concerns about the global economic outlook, he said.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, slid 8.52 points, or 0.3 percent, to 2,863.89 at the close. The index has fallen 1.6 percent this week, a third weekly loss and the longest five-day losing streak since December. That followed a report showing that slowing manufacturing growth has fueled concerns that tightening policies are hurting the economy. The CSI 300 Index retreated 0.2 percent to 3,121.40.

Related readings:  Chinese shares end lower Friday  Oil price rebounds  Shenhua to seek rights issue

The Shanghai Composite has declined 6.3 percent from a five-month high registered on April 18. The drop came on concern that the government will add to 10 increases in lenders' reserve-ratio requirements and four rises in interest rates since early last year to cool inflation. The losses have pared the gauge's advance this year to 2 percent.

Oil Slumps

A gauge of energy producers in the CSI 300 slid 1.9 percent on the day and 5.5 percent for the week, the most among the 10 industry groups. PetroChina slumped 2.2 percent to 11.15 yuan ($1.72).

Shenhua fell 1.6 percent to 27.59 yuan. Yanzhou Coal Mining Co slid 2.9 percent on Friday, adding to an 11 percent plunge this week. Goldman Sachs Group Inc said in a report on May 4 that the government may control thermal coal contract prices to help power producers.

Oil tumbled 8.6 percent, the most in two years, to $99.80 a barrel in New York on Thursday. Crude, which had risen 17 percent since Feb 16 when protests began in Libya, has tumbled 12 percent in the past four days after the killing of Osama bin Laden.

"The slump in oil prices may not be outright good news for markets," wrote Ting Lu, an economist at Bank of America-Merrill Lynch, in a report on Friday. "Markets will shift their concerns to growth in both China and other countries."

Falling oil prices boosted shares of airlines. China Southern Airlines Co, the largest carrier, gained 3.8 percent to 8.69 yuan. Air China Ltd, the nation's largest international carrier, climbed 1.6 percent to 10.98 yuan. China Eastern Airlines Corp, the nation's second-largest carrier, added 1.3 percent to 6.27 yuan. Jet fuel accounted for about one third of airlines' spending last year, according to their annual reports.

A measure of healthcare stocks gained 1.5 percent. Guangxi Wuzhou, a manufacturer of traditional Chinese medicines, advanced 4 percent to 36.68 yuan, set for the biggest gain since April 20. Jiangzhong Pharmaceutical Co advanced 3.2 percent to 28.37 yuan.

Bloomberg News