December 6, 2017 / 12:09 PM / 10 months ago

China commodity exchange penalty stirs worries of more curbs

BEIJING (Reuters) - China’s major commodities from copper to coke plunged on Wednesday after a rare penalty by a major exchange against an investor stirred concerns that regulators may be readying to launch another crackdown on speculators in red-hot markets.

A worker monitors automatic copper wire unit at the Fast Cables plant in Lahore, Pakistan, March 24, 2017. Picture taken March 24, 2017. REUTERS/Mohsin Raza

On Tuesday, the Zhengzhou Commodity Exchange said in a statement it had banned an investor whose surname was Liu from trading for three months after he indulged in “unusually frequent” trading of ferro-silicon futures.

It did not give any further details and declined to comment further on Wednesday.

The punishment had little impact on the ferro-silicon market on Wednesday with futures prices rising as high as 8,990 yuan per tonne, a record, before ending the day up 7.5 percent.

The Zhengzhou exchange responded to that rally by hiking margins and trading limits for the most actively traded ferro-silicon contract. It also warned investors of heightened risks in ferro-silicon and silico-manganese.

Ferro-silicon, an alloy used in the steelmaking process, has surged 47 percent since the end of September. On Tuesday, a whopping 420,000 lots changed hands, worth 18.5 billion yuan ($2.8 billion), versus an average of around 40,000 lots over the past year.

While the move by the Zhengzhou Exchange had little impact on ferro-silicon, metals traders and analysts interpreted it as a sign that the country’s exchanges may intervene to cool other industrial metals markets, such as copper.

“The penalty from Zhengzhou has added some pressure on other commodities sectors, which gave long position holders an opportunity to pull back,” said a Zhengzhou-based steel trader.

Over the past two years, the Dalian Commodity Exchange, Shanghai Futures Exchange and Zhengzhou have used fee hikes and position limit curbs as ways to snuff out speculative rallies that the authorities say are not justified by fundamentals.

On Wednesday, Shanghai copper fell more than 3 percent, its biggest one-day fall in more than a year, with investors piling on bearish bets. As prices dropped, open interest in copper futures rose by 4,628 lots to 768,378 lots on Wednesday.

Nickel futures fell to their lowest in two months.

Big bursts of speculative buying in Shanghai copper futures, one of China’s top derivatives markets, have fuelled a rally to multi-year highs over the past month, drawing notice among traders and users.

Meanwhile, Shanghai benchmark steel prices closed down more than 3 percent and iron ore fell more than 4 percent on Wednesday.

The China Securities Regulatory Commission (CSRC) and Dalian and Shanghai exchanges did not immediately respond to requests for comment.

($1 = 6.6132 Chinese yuan renminbi)

Reporting by Muyu Xu and Josephine Mason; Editing by Christian Schmollinger

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