China imposes fresh curbs on commodities as iron ore, steel slide
REUTERS 3:33 AM ET 4/26/2016
* Dalian iron ore falls 6 pct, Shanghai rebar down nearly 4 pct
* Coking coal, coke and cotton well off day's peaks
* China has moved this week to crack down on price surge (Adds latest transaction fee changes, details)
By Ruby Lian and Manolo Serapio Jr
BEIJING/MANILA, April 26 (Reuters) - Chinese commodities exchanges stepped up efforts on Tuesday to curb surging prices that some say have been driven by speculators, raising fears of another derivatives bubble after last year's stock market collapse.
Transaction fees for iron ore futures were hiked for a second time in as many days, after the original increase led to a sharp drop in iron ore and steel futures in China that helped cool a week-long surge in local commodities markets.
Base metals futures also fell on Tuesday, while other commodities, including coking coal and cotton, surrendered most of their early gains to end nearly flat.
China's top commodity exchanges in Dalian, Shanghai and Zhengzhou increased trading margins and fees in response to last week's spike in prices and volumes, which some analysts said were not matched by fundamentals for the underlying commodities.
The Dalian Commodities Exchange in northeast China said it would raise transaction fees for iron ore and polypropylene futures contracts twice in two days this week.
The exchange said on Tuesday it would also hike transaction fees for coke and coking coal futures contracts starting from April 27.
The most traded September iron ore contract on the Dalian exchange closed down 6 percent at its exchange-set floor of 450.50 yuan ($69.35) a tonne. It hit 502 yuan on Monday, its strongest since August 2014.
Analysts say the spike was largely due to speculators betting that a rise in infrastructure spending in China would lift raw material prices, which have been battered for years by a broad-based glut.
But analysts warned that the rise could flip into an equally precipitous fall.
"The speculation-driven futures rallies are not sustainable, and consolidation may have some spillover effects on the spot market," Argonaut Securities'Helen Lau said in a note.
News that China's top steel making province would ban the reopening of steel mills previously ordered to shut down also weighed on sentiment for commodities used in steel making, which include iron ore, coking coal and coke.
SHORTAGE OF SOME MATERIALS
On the Shanghai Futures Exchange, rebar - reinforced steel used in construction - fell 3.8 percent to close at 2,554 yuan a tonne.
Rebar reached a 19-month high of 2,787 yuan on April 21, when its turnover was worth nearly 50 percent more than the total value of trade on the Shanghai stock exchange.
The exchange said late on Tuesday that it would reduce night-time trading hours on rebar , hot-rolled coil and bitumen futures contracts, which are among the most heavily traded on the exchange.
Night trading hours for all three contracts will be from 9 p.m. to 11 p.m., compared with 9 p.m. to 1 a.m. previously, beginning on May 3.
Open interest in iron and rebar has fallen sharply, suggesting some trades are being executed by investors holding short positions that are getting squeezed.
Coking coal on Dalian closed nearly flat at 797.50 yuan a tonne after hitting a contract-high of 837.50 yuan earlier. Coke trimmed gains to 0.4 percent after rising as much as 4 percent. The two had soared by their 6 percent limit on Monday.
Cotton on Zhengzhou Commodity Exchange also closed little changed after spiking as much as 3.6 percent.
The exchange said on Tuesday it would hike transaction fees for cotton futures to 6 yuan ($0.92) per lot from 4.3 yuan, starting from Wednesday.
It will also raise the margin and widen the trading limit on the petrochemical PTA futures contract from April 27, the exchange added.
Jin Tao, analyst with Guotai Jun'an Futures in Shanghai, said there was a "severe shortage" of coking coal and coke following shutdowns of mines and plants in China last year as steel mills step up production.
That has fuelled a big spike in spot prices of the two raw materials, particularly this month, said Jin.
"Whether the rally can be sustained will depend on whether the government will keep reining in the sector. But falling forward contracts suggest investors remain cautious on the outlook," he said. ($1 = 6.4958 Chinese yuan renminbi)
(Reporting by Manolo Serapio Jr.; Additional reporting by Ruby Lian in Shanghai and Megha Rajagopalan in Beijing; Editing by Will Waterman and Mike Collett-White)
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