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December 1, 2016

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Stricter rules hit commodity prices

COMMODITY prices in China plunged yesterday as the government imposed stricter rules to dampen speculation.

Coking coal prices slumped 8 percent on the Dalian Commodity Exchange, as did iron ore prices. On the Shanghai Futures Exchange, steel rebar and zinc prices lost 7 percent.

The plunge came as the Shanghai exchange yesterday set the daily trading limit of zinc to 1,500 deals and lead to 1,000 deals for non-clearing members. On Monday, the bourse penalized seven investors speculating in coking coal and coke by barring them from trading.

Also on Monday, the Dalian Commodity Exchange cut the cap on iron ore’s daily price change to 8 percent from 10 percent while raising the commodity’s trading deposit to 10 percent.

Prices fell in line with a selloff in China “as speculators were spooked,” said Gao Shang, chief analyst for futures research at Haitong Securities.

China is imposing more restrictions on domestic traders, mainly short-term speculators, who are reluctant to inject capital in the real economy due to the slowdown but are active in seeking short-term profits, Gao said.

Commodity trading advisory funds and private hedge funds that use futures contracts to profit were collaborating with real estate investors to draw capital from the real estate market “in a bid to win more money by pumping capital into the commodity futures market,” Gao added.

Commodity prices had rallied after China achieved the target of cutting steel output capacity, the Shanghai exchange said.

Meanwhile, the decline in commodity prices hurt the stock prices of these companies.

The Shanghai Composite Index fell 1 percent to close at 3,250.03 points yesterday, dragged down by the coal mining sector which lost 2.39 percent, while nonferrous metal processing firms shed 2.31 percent and steel companies lost 2.15 percent.

Despite the decline, the index rose 4.8 percent in November, its best month since March.


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