Why everyone blames China for slumping commodity prices

The Chinese economy is in a serious slowdown. On Friday, we learned that small and medium-size manufacturing firms in China are struggling.

That's bad news not just for its trading partners and global manufacturers, but commodity prices too.

Metal prices are at multi-year lows. Gold hasn't been this cheap in 5 years. Copper, nickel and aluminum all hit or got close to 6-year lows.

The reason for this is simple, China uses massive amounts of these materials. As you can see in this chart from UBS, China currently accounts for nearly half of the world's demand for copper, nickel and aluminum. The market for iron ore, the price of which has gotten destroyed this year, is dominated by China with nearly 70% of seaborne and close to 60% of global demand coming from the country. Steel, of which China accounts for between 40-50% of the world's demand. has seen production tumble.

China has needed massive amount of raw commodities to build out the infrastructure in its booming economy. So, as that boom fades a bit, so too does the massive demand for these goods.

"Over the last decade China has become an increasingly significant consumer of many internationally traded commodities," the analysts wrote. "Lower Chinese demand has already impacted global commodity prices adversely. An expectedly sharp fall in Chinese demand could send those commodity prices lower still."