Af­ter fran­tic rally, China com­modi­ties fall hard

Kuwait Times - - BUSINESS -

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

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