Chinese commodity futures staged another mind-boggling rally

Photo by Matt Archer/Getty Images

Even by their usual volatile standards, Chinese commodity futures posted some mind-boggling moves during Tuesday’s trading session.

Here’s the scoreboard at the close:

  • SHFE Copper ¥46,330 , 1.25%
  • SHFE Aluminium ¥12,980 , 2.04%
  • SHFE Zinc ¥22,490 , 4.82%
  • SHFE Nickel ¥87,130 , 1.51%
  • SHFE Rebar ¥3,167 , 6.99%
  • DCE Iron Ore ¥594.00 , 8.00%
  • DCE Coking Coal ¥1,268.00 , 7.82%
  • DCE Coke ¥1,687.00 , 8.98%
  • The term “bonkers”, comes to mind, particularly the move seen in bulks and steel futures.

    Iron ore, in particular, had a whale of a session, closing limit up 8% at 594 yuan. Essentially, the only thing that prevented it from rallying further was that it was not allowed to due to existing exchange rules.

    It was joined by rebar and coke futures which also closed limit up 8% and 9% respectively. Coking coal futures weren’t far behind, adding a lazy 7.82%.

    Remarkable gains.

    Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank, said prices were supported on demand hopes after environmental restrictions on steel production in northern China were partially lifted earlier in the week.

    He also said that an announcement of further steel capacity cuts in the Chinese province of Hebei — a major steel producing region — may have also contributed to recent gains.

    “While smog concerns still threaten to lower steel output, a drive to cut outdated steel capacity is also pressuring production lower. The Chinese province of Hebei announced that it will cut 32 million tonnes of steel capacity this year,” he said.

    While that may explain the resilience in rebar futures seen on Tuesday, as Dhar noted late last year, reduced steel output would usually see demand for the raw materials required to make it — including iron ore — fall as a consequence.

    That wasn’t a consideration for traders on Tuesday, let alone the fact that Chinese iron ore port inventories currently sit at the highest levels seen in over two years.

    As they have done for a while now, where Chinese steel prices move, bulk commodity futures continue to follow.

    The renewed strength in futures followed the release of Chinese producer price inflation figures earlier in the session which revealed prices grew at the fastest annual pace seen since September 2011 in December.

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