This sector is getting slammed by China’s market dive

The dramatic plunge in Chinese equity prices has hit base metals hard, with prices tumbling on Tuesday and subdued on Wednesday.

Benchmark copper on the London Metal Exchange fell to a 6-year low of $5,240 per ton on Wednesday, before bouncing slightly to $5,375, according to Reuters data.

Nickel was up 0.6 percent on Wednesday, following an 11 percent tumble Tuesday, when it was down nearly 29 percent for the year. Aluminum also held relatively steady on Wednesday, in the wake of similar losses a day earlier.

"It's a small improvement after the carnage we saw earlier this week," Nic Brown, head of commodities research at Natixis, told CNBC.


Brent Lewin | Bloomberg | Getty Images

The rocky ride comes amid intense volatility in Chinese equities, which continued on Wednesday—the stabilization in metals prices during the day was attributed to the lower U.S. dollar rather than any calming in the stock market. Metal and basic resources prices are strongly tied to the Chinese economy, due to high demand for China for these materials.

The benchmark Shanghai Composite slid as much as 8 percent in early trade on Wednesday and is down more than 30 percent from a seven-year peak on June 12.

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The rout, paired with the strong greenback and worries over China's growth prospects, has left metals under pressure, said Carsten Menke, commodities research analyst at Julius Baer.

"Concerns about China have led to panic selling in metals markets," he said in an email.

More than 900 China-listed companies halted trading in China on Wednesday, the "Financial Times" newspaper reported. China's securities regulator has issued warnings over "panic sentiment".

Goldman Sachs analysts, led by Jeffrey Currie, suggested equities weren't the main driver of the metals dip in a recent commodities note.

"We continue to believe that the equity sell off was mostly a catalyst in commodity markets and that the more far-reaching implications are more erosion in the confidence in Chinese policymakers."

There is also weak underlying demand for commodities, which Goldman Sachs said started before both the Chinese equity rally and the subsequent correction.

Meanwhile, Commerzbank warned that metals won't stabilize anytime soon.

"Although we firmly believe that the price slide is excessive, the momentum suggests that prices will fall further in the short term," Eugen Weinberg said in a research note on Wednesday.

Clarification: This article has been updated to reflect that copper hit a 6-year low on Wednesday.