CHART: The last word on the role of speculators in 2016 bulk commodity prices

If there was any remaining doubt Chinese speculators have been a major factor driving the wild swings in bulk commodity prices this year, this chart surely puts it to rest.

Courtesy of the Commonwealth Bank’s commodity research team, it shows the average tenure of Chinese iron ore and rebar futures traded on the Dalian and Shanghai Futures Exchanges.

Investing for the long-term, hey?

The average hold period for both contracts is now less than 24 hours, having been significantly higher earlier in the year as a result of tighter trading restrictions implemented by regulators back in May, when speculative elements in these markets reached unprecedented levels.

Regulators announced similar measures last month in an attempt to reduce speculation in these markets. However, as yet, they’ve not had much of an impact, something that Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank, says adds to both upside price risks and increased volatility in these contracts next year.

“Without intervention, speculative trading will likely be another risk to higher prices in 2017, particularly if China deploys further stimulus,” he says.

“Price volatility would likely continue next year if speculative trading is left unchecked – both to the upside and downside depending on prevailing sentiment.”

Since the start of November, the average daily trading range in the May 2017 iron ore future on the Dalian Commodities Exchange has been a massive 4.2%.

To put that into perspective, the average daily trading range for front-month Brent crude futures over the same period — which included OPEC’s decision to cut crude production for the first time since 2008 — has only been 3.4%.

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