Global economic developments this week are raising questions about what’s driving the steep drop in energy and metals commodities. Economists are blaming the price declines on producers, who they say are causing a global glut.

Even so, China’s recent economic slowdown is making the world’s oversupply of commodities and building materials a much bigger problem. The world’s second-largest economy announced Tuesday that it grew 7.4 percent in 2014, the slowest pace since 1990. The news came a day after the International Monetary Fund, the Washington, D.C.-based global development bank, cut its global growth forecast from 3.7 percent to 3.5 percent.

“The revisions reflect a reassessment of prospects in China, Russia, the euro area, and Japan as well as weaker activity in some major oil exporters because of the sharp drop in oil prices,” said the IMF report.

Economists say China needs to shift away from relying on investment for economic growth, but by doing so — without a corresponding increase in consumption from a wider section of Chinese society beyond the wealthy and the super rich — the country would also see a decline in demand for imported goods like copper wire, tubing for construction and iron ore to make steel. A slowdown would also curb demand for oil, the price of which has been dropping largely due to a global oversupply rather than a lack of demand.

“China overinvested from 2009 to 2014 without the demand to make the investment pay off,” Andy Xie, an independent economist in Shanghai, told the Guardian. “So it really needs to consolidate.”

Much of that overinvestment has gone to real estate development, raising concerns of a Chinese bubble that, if burst, would send the global demand for raw materials plummeting. A glut plus a steep drop in demand would be disastrous for countries reliant on the extraction and export of industrial materials, including Chile, Brazil, South Africa and Australia.

Still, China’s growth, including its recent announcement of a $1.1 trillion economic stimulus plan, is a vital component to the global demand for key ingredients in industrial production. And because of its ravenous demand and multiyear expansion, producers have been reticent to reel back on production.

"China scares me," Nobel Prize-winning liberal economist Paul Krugman said Tuesday during a talk at the Asian Financial Forum in Hong Kong. The switch from growth for growth’s sake to an economy powered by consumers rather than investors won’t be easy. "I would be surprised if there isn't a quite nasty recession as China tries to make a transition," he added, expressing the common fear that a big bubble forming in China could burst, sending the world into another recession.

But for now the narrative seems to be that the glut in global industrial commodity prices is largely coming from the supply side, precipitated by the lure of cheap oil that is encouraging stockpiling as the cost of shipping raw materials hits a multiyear low.

Iron Ore Giants Keep Churning

“In a challenging market Rio Tinto remains focused on operating and commercial excellence to leverage our low-cost position and maximize value for shareholders,” London-based Rio Tinto said Tuesday in announcing its fourth-quarter operations review. The world’s second-largest iron ore extractor (behind Brazil’s Vale SA) reported an 11 percent increase in iron ore production, an annual record despite a glut that has driven prices close to lows unseen since 2009 amid the last major global economic slowdown. The benchmark price for the key ingredient in making steel is near $69 a ton on Tuesday after a slight rebound from a five-year low of $65.70 hit in December, according to data from the Chicago Mercantile Exchange.

Iron ore prices are so low that smaller producers are getting hit hard. Australia’s Atlas Iron said Tuesday in its fourth-quarter 2014 report that it spent 66 Australian dollars ($54) to produce a ton of iron ore but sold it for $63 ($51.57). For the last six months of the year, the company eked out 82 cents of profit for every ton, despite $3.27-per-ton savings on shipping, thanks to lower oil prices.

On Thursday Citi analysts reduced their iron ore prices forecast for the year from $65 to $58 a ton. The fall in price has led to all-time-record iron ore imports for China in December as the country takes advantage of low oil prices to import more of the raw material from abroad, which has encouraged iron ore extractors to continue to dig up the commodity despite falling profits and concerns over China’s slower economic growth.

Copper Rebounds On Recent China News

Copper prices rebounded on Tuesday in London after China’s economic news wasn’t as bad as expected. The country’s December growth figure, which was also released Tuesday with the 2014 growth number, showed factory output increasing 7.9 percent and retail sales climbing 11.9 percent, both better than analysts had forecast. Copper prices (measured as the price of future delivery in March) advanced 1.1 percent to $5,732 a ton in midday trading on the London Metal exchange.

“We remain bullish on the copper outlook,” Morgan Stanley said in its research note published Monday. The bank sees a ton of copper rebounding to as much as $7,605 a ton, up from $5,671 today on the London Metals Exchange.

Others says Chinese demand for copper will come from other sectors of the economy besides real estate, which has been slowing quickly.

“A large component of that [copper] demand is outside the [Chinese] property sector,” Hanré Rossouw, portfolio manager at Investec, told “So, while there has been a moderation in property sales and fixed asset investment, there is still demand in the air-conditioning space, for example.”

The price of the key metal used in construction and other infrastructure development is down nearly 10 percent since the start of the year. An Asian slowdown led by China is worrying investors. Copper fell last week by its biggest drop since 2011. Copper prices dropped for the fourth consecutive year in 2014, the longest slump since 1991, according to Bloomberg News.

Oil Remains Below $50 A Barrel

Meanwhile, oil prices reacted negatively to the IMF global growth downgrade and weak China economic news 

Brent crude slipped 65 cents to $48.19 per barrel in London as investors in the global benchmark oil price reacted after the Washington, D.C.-based global development bank downgraded the world’s global growth forecast to 3.5 percent from 3.8 percent for 2015.

U.S. West Texas Intermediate (WTI) fell nearly $2 to $46.79 per barrel in midday trading on Tuesday, leaving both key global prices below $50. U.S. crude price under $50 since Jan. 6 while Brent has remained below $50 since Jan. 9.

"We're still trading sub $50 on both WTI and Brent, I think that's really the main message," BNP Paribas analyst Harry Tchilinguirian told Reuters. Oil prices are down by half since June to the lowest since March 2009.