After frantic rally, China commodities fall hard
Commodities from coal to soybeans slumped in China yesterday as speculators cashed out of futures markets because of concerns that regulators may tighten curbs to tame price swings. A selloff in steel and steelmaking raw materials iron ore and coking coal spread to base metals and agricultural products with coke tumbling nearly 9 percent and steel and iron ore each sliding 6 percent. Chinese investors renewed their push into commodity futures this month and increased their bets shortly after Republican Donald Trump’s shocking US presidential win on Nov 8 amid a selloff in global markets. However, that shock proved fleeting and global risk assets surged.
Tuesday’s sharp, broad fall in Chinese commodities “suggests that the crazy jump last week cannot be sustained and so we’re seeing self-correction,” said Wang Di, analyst at CRU consultancy.
Iron ore on the Dalian Commodity Exchange, which rose as high as its exchange-set ceiling in the previous four trading sessions, fell 6 percent to close at its downside limit of 591 yuan ($86) a ton. Rebar steel and coking coal also each slid 6 percent while coke, made from coking coal, dropped 8.6 percent.
A flurry of measures from Chinese commodity exchanges from Dalian to Zhengzhou and Shanghai over the past week including increased transaction fees and margins has fuelled a “panic among investors,” said analyst Wang Fei at Huaan Futures. “With a cap on trading limit, big institutional investors started the sell-off, which was followed by smaller retail investors,” said Wang.
The latest curbs reduced market liquidity, accelerating the price falls, said a Shanghai-based analyst who declined to be named because he was not authorized to speak with media.
“Hot money from the stock market and programmed trading entered the futures market at the height of the rally. These investors are not familiar with China’s futures market. They are the major force in the selloff today and on Friday,” he said. Chinese commodity exchanges and regulators took similar steps earlier this year to stamp out speculative trading that was also behind the boom and bust cycle in its stock markets last year. Going forward, prices of coal and iron ore could remain elevated amid tight Chinese coal supply that has increased appetite for high-grade iron ore, said Wang at CRU.
Chinese copper futures were not spared from yesterday’s sell-off either, falling 4.3 percent. Tin was down 3.3 percent and aluminium dropped 3 percent.
In agricultural markets, soybeans slid 4.4 percent, cotton fell 3.6 percent and rapeseed meal slipped 3 percent. — Reuters