Steel and iron ore futures in China steadied on Thursday, while other commodities fell as a key Chinese exchange stepped up measures to combat speculative froth behind a recent market surge. Financial investors have charged into Chinese commodities futures this year, driving up contracts including iron ore, rebar, cotton and even eggs, leading many to warn of similarities with a boom in the country's stock markets, which reversed into a sharp crash last summer.
This week has seen a marked pullback as exchanges raised the cost of trading to avoid mirroring the outcome in stocks. Coking coal futures were the hardest hit on Thursday, falling by the downside limit of 6 percent, after the Dalian Commodity Exchange imposed higher transaction fees for the fourth time in a week.
"In general, there will still be some volatility, but not as much as we have seen recently because there's more vigilance from the exchanges," said Helen Lau, analyst at Argonaut Securities in Hong Kong. The Dalian exchange said the series of steps it took this week were meant to reduce speculation and market risks. "The aim is to restrict the oversized space for profiting from short-term trades, reduce elevated holdings of related products and curb speculation," the exchange said late on Wednesday. Dalian doubled the transaction fees on steelmaking raw materials coking coal and coke futures from Thursday. It will also widen the trading limit for both contracts to 7 percent from 6 percent from Friday and increase the minimum margin to 9 percent from 8 percent.
For a second straight day, coking coal on Dalian fell by the 6 percent maximum allowed, closing at 729.50 yuan a tonne. Coke fell 1.2 percent. Dalian had also raised transaction fees on iron ore futures twice this week. The commodity exchanges in Shanghai and Zhengzhou have also imposed curbs to restore calm after a week-long surge.
Analysts say the rally, which for iron ore lifted prices more than 50 percent this year and sometimes involved daily trade volumes greater than China's entire 2015 imports, defied supply-demand fundamentals as investors bet that signs of stabilisation in China's economy would feed further price gains. The surge in volatility rattled industrial players who use the commodity markets for hedging, with some taking losses or cutting exposure, driven out by a flood of money from hedge funds and retail investors.
Steel rebar on the Shanghai Futures Exchange, the leader of last week's big spike, closed up 0.8 percent at 2,539 yuan a tonne. Turnover on the contract reached nearly 50 percent more than the total value of trade on the Shanghai stock exchange on April 21.
On the Dalian Commodity Exchange, the most-traded iron ore contract rose 1.1 percent to 446 yuan a tonne after dropping by the 6 percent limit for a second straight day on Wednesday. At their peak this year, Dalian iron ore had risen 73 percent and Shanghai rebar 62 percent. Rebar has fallen more than 4 percent so far this week and iron ore, has given up 6 percent.
Lau said she did not expect rapid increases in steel prices to continue as Chinese mills have boosted production, easing the market tightness. Shutdowns by mills in the past year and a pickup in seasonal demand had curbed Chinese steel supplies. "Towards the weak season from June or July, speculative activity (on steel) will gradually wane," she said. Cotton on the Zhengzhou Commodity Exchange fell 3.8 percent, Shanghai aluminium dropped 2.8 percent, and Dalian soybeans fell 2.7 percent.
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