China steel futures fall most in seven years as rout extends

Exchanges in Dalian, Shanghai and Zhengzhou have imposed curbs to rein in speculative activity

PUBLISHED : Tuesday, 10 May, 2016, 4:56pm
UPDATED : Tuesday, 10 May, 2016, 5:45pm

Chinese rebar steel futures posted their biggest intraday fall in seven years on Tuesday, as worries about demand in the world’s second-biggest economy extended a rout that has spilled over into other industrial raw materials.

Rebar, or reinforced steel, fell 7.6 per cent at one point, while iron ore lost as much as 6 per cent. Retail buyers rushed into China’s commodities futures in April, hoping a stabilising economy would boost demand for raw materials, lifting prices and volumes of everything from steel to cotton.

China’s main commodity exchanges in Dalian, Shanghai and Zhengzhou have since imposed measures to rein in speculative activity including higher trading fees.

Buying interest has shrunk so those steel traders who have bought cargo for speculation must now feel the pain with actual demand just so-so
Shanghai-based trader

The big market moves and the response of authorities have raised concerns about the risk of contagion for global markets, particularly after last year’s Chinese stock boom and bust

The exchanges’ measures along with an increase in steel supply, particularly of rebar used in construction, had helped fuel a big retreat in futures prices, said Qing Dong Qing, analyst at Shanghai Zhong Cai Futures.

“The short positions of hedge funds and futures investment funds have also suppressed ferrous metals,” Qing said.

The most-traded rebar on the Shanghai Futures Exchange fell as much as 7.6 per cent to 2,085 yuan (HK$2,481) a tonne, its weakest since March 18 and the biggest percentage drop since March 30, 2009. It closed down 4.9 per cent at 2,147 yuan.

Chart of the day: Rebar rebalancing

Rebar, which led the mid-April rally that unnerved global investors, has dropped nearly 16 per cent this month after gaining a record 21 per cent in April.

“Buying interest has shrunk so those steel traders who have bought cargo for speculation must now feel the pain with actual demand just so-so,” said a Shanghai-based trader.

China’s crude steel output hit a record high of 70.65 million tonnes in March and analysts and traders expect production to have remained strong in April as a rally in steel prices spurred mills to lift output. The April data will be released later this month.

Blame China’s steel glut on meddling by local governments

The weakness in steel has spilled over to raw materials used to make it. On the Dalian Commodity Exchange, the most-active iron ore contract ended down 4.5 per cent at 385.50 yuan a tonne after hitting a session low of 379.50 yuan, the lowest since April 11. It fell as much as 6 per cent earlier in the session.

Dalian coke fell 3.4 per cent to 936 yuan a tonne.

Other commodities traded on Chinese platforms also dropped, with Shanghai nickel down nearly 2 per cent, tin off 2.4 per cent and aluminium down 2.5 per cent.