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Shanghai/Manila: Chinese steel futures were on course for their biggest weekly fall since 2009 on Friday, as a sell-off in the country’s commodities showed signs of spreading to other global markets for raw materials such as palm oil and base metals.

Weakening fundamentals along with strong measures by Chinese exchanges to stamp out speculative activity have helped reverse momentum in China’s massive commodity futures markets from bullish to bearish in less than a month.

The deepening losses have started to weigh on global markets elsewhere, in a similar manner to the boom and bust cycle in the country’s stock markets last year.

Malaysian palm oil futures, the global benchmark for the commodity, fell more than 2% on Friday, with traders blaming a 4% fall in China’s vegetable oil futures.

Iron ore futures in China have fallen 27% from their April peak, pulling down the global spot benchmark down 21% from last month’s high.

The crackdown on speculators in China’s steel markets has doused a recovery in base metals prices on the London Metal Exchange, analysts say.

Rising levels of open interest, or open contracts, in China’s steel and iron ore futures, as prices fall deeper suggest investors are looking at more downside risk.

“The sentiment is very bearish now, and investors are looking for opportunities to take more short positions," said Wu Wei, an analyst at Yong’an Futures in China’s Hangzhou city.

The softer outlook for the Chinese economy, rising steel production and waning seasonal demand have fueled the sharp losses in steel-linked futures, said Wu.

Past the peak

The most-traded rebar on the Shanghai Futures Exchange was down 5% at 2,020 yuan ($310) a tonne by 0553GMT after falling by the 6% maximum allowed by the exchange.

Rebar, or reinforcing steel used in construction, surged 80% from last December to April, but has since dropped more than 27%. It has lost more than 11% this week, the most since the contract was launched in 2009.

The price rally pushed some shuttered steel mills in the world’s top producer to resume production, but the ensuing price rout could make them unprofitable again.

Iron ore on the Dalian Commodity Exchange was down 5.4% at 362.50 yuan a tonne after also dropping by its 6% downside limit.

“We are now kind of at or past the peak in seasonal demand so prices are coming down. And maybe since we overshot on the upside so we can undershoot on the downside," said Ian Roper, commodity strategist at Macquarie.

Other steelmaking raw materials hit hard on Friday included coke and coking coal on the Dalian exchange, which fell 5.5% and 3.7% respectively.

Agriculture futures also slumped with soybean oil and palm olein on Dalian down 4% and Shanghai rubber falling nearly 5%. Egg and soybean dropped more than 2%.

Investors appear to have pulled out more funds from Chinese markets as exchanges keep up the pressure to control speculative investment and crack down on high-frequency trading.

The Dalian exchange said on Thursday it will stop the 50% transaction fee discount on intraday trading of soybean meal, corn starch, palm oil, and soybean oil futures from 16 May.

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