Worries dent Chinese commodities
Print Edition
CHINESE commodities dived yesterday, led by 6 percent falls in steel and iron ore futures, as deepening worries about China’s demand extended a fortnight of sharp drops and false rebounds in the country’s market for industrial metals.
Speculative funds rushed into China’s commodities futures last month, betting the country’s economy was bottoming. The buying frenzy alarmed domestic exchanges and regulators feared a bubble could be forming as volumes and prices soared.
To limit speculation on futures from steel to coal, the country’s three commodity exchanges have taken steps, including raising trading margins and transaction fees, and widening daily movement caps.
The big market swings and the response of authorities have raised concerns about the risk of contagion for global markets, particularly after last year’s stock boom and bust.
Yesterday, the Dalian Commodity Exchange said it would continue to strengthen its market monitoring and may raise transaction fees further to curb speculation.
“Futures liquidity has dropped sharply following exchanges’ measures, and now investors are worried China’s economic trend will be weaker than previously expected, hurting sentiment,” said Zhao Chaoyue, an analyst at Merchant Futures in Shenzhen.
The most-traded rebar, or reinforced steel, on the Shanghai Futures Exchange saw its biggest daily fall on record yesterday. It hit a downside limit of 6 percent to 2,175 yuan (US$334) a ton, the lowest since April 7.
September iron ore futures on the Dalian Commodity Exchange also tumbled by their daily permissible limit of 6 percent to 388 yuan a ton.
Spot prices of billet, a semi-finished steel product, seen as a key reference point for the physical market, have fallen in the last few days, traders said.
The declines followed customs data on Sunday that showed iron ore imports fell 2.2 percent in April from March, while copper ore and concentrate imports shed 8 percent on the month.
High iron ore stocks
Fanning concerns about weak fundamentals, iron ore inventories at China’s big ports topped 100 million tons by the end of April, the China Iron & Steel Association said yesterday.
“Steel demand is seasonally weaker between June and August, while output keeps rising, which has been interpreted by investors as the turning point of the economic recovery,” said Zhao of Merchant Futures.
Speculative interest has focused on steel since it is seen as a lead indicator for the commodities complex, which is used at the very early stage of projects.
“In the next two to three months we might see some seasonal factors kicking in to cool prices down and drive speculative buyers away,” said Judy Zhu, an analyst with Standard Chartered in Shanghai, adding that demand should gradually improve over six to eight months.
Other steelmaking raw material futures also fell yesterday, with metallurgical coke slumping 6.9 percent and coking coal down 4.3 percent. Nickel dropped 3.3 percent.
The selling also hit agricultural futures.
China’s Dalian soybeans slid for a fourth straight session yesterday to their lowest in nearly three weeks even as strong demand from the world’s top importer of the commodity drove up benchmark US prices.
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