Things are getting frenetic in and around China’s commodity exchanges as speculators continue to drive prices higher and regulators fight back to dampen the overheating.
A 17% fall in spot iron ore prices – from more than $US68 a tonne last Thursday, to $US60 a tonne overnight Wednesday – is evidence the exchanges moves are having some impact, but analysts warn the speculative pressures will merely switch to other commodities in search of profits.
China’s commodity futures exchanges made their second move in less than a week to crackdown on unwarranted speculation in commodities ranging from steel, to copper, aluminium and iron ore.
Bourses in Dalian, Shanghai and Zhengzhou revealed more further measures on Tuesday, including higher fees and a reduction in night hours. This was on top of moves last Thursday to raise margin payments and cut fees to make speculating in commodities more expensive.
Among the latest changes, the Dalian exchange raised trading fees for iron ore, coking coal and coke, while Shanghai said it would increase margin requirements for steel reinforcement bar and hot-rolled coil, and shorten trading hours.
The Zhengzhou exchange also raised trading charges and margin requirements for some commodities.
All these changes would have been signed off on by the government and the country’s central bank and markets regulators, so the indicate growing official unease.
The Financial Times reported overnight:
"Daily trading volumes in some commodity futures contracts such as iron ore have been so large that sometimes they have exceeded China’s annual imports. Turnover in Shanghai steel futures one day last week eclipsed all of the shares traded on China’s equity market.”
So it’s no wonder the exchanges have been cracking down, as the Zhengzhou exchange said on Tuesday:
“We’re trying to clampdown firmly on the trend of excessive speculation in some commodity trading,” the Dalian bourse said in a statement. “We’ll be highly vigilant and adopt further measures if necessary.”
The moves saw iron ore prices slump 5% on Tuesday to 5% to $US62.78 tonne. That was after a fall of 0.4% on Monday and 5.9% last Friday. That was after an 8.8% jump last Thursday, a surge which seems to have triggered the first round of moves by the changes to crack down on speculation.
Goldman Sachs said this week it was concerned about the surge in speculative trading in iron ore futures, saying daily volumes were now so large that they sometimes exceed annual imports.
The speculation has iron ore futures jump 34% this year in Dalian, while steel reinforcement bar is up 41% in Shanghai. Morgan Stanley said earlier this week that the spike in speculative trading had stunned global markets, citing a jump in activity for eggs, garlic and cotton as well as steel and iron ore.
