Weakening Chinese Demand is Weighing on Commodities ETFs

Commodity-related exchange traded funds have been under pressure and have experienced a steep plunge in recent sessions as market watchers grow concerned over softening demand in China for construction materials.

The PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), the largest broad commodity-related ETF, has declined 6.8% over the past month and fell 10.0% year-to-date.

Dragging on the commodities outlook, traders are wary of falling demand out of China, the second largest economy in the world, due to weaker manufacturing data and recent moves by Chinese regulators that could curb growth in areas like housing and infrastructure, the Wall Street Journal reports.

Consequently, materials like iron ore and steel have experienced steep declines over concerns over the health of the Chinese economy.

“There has been a visible shift of sentiment in the financial market,” Sun Yonggang, an analyst at Chaos Ternary Futures Co., told the WSJ. “Over 80% of the steel traders we talked with were upbeat about the outlook in the first quarter. But now they have all turned pessimistic.”