Chinese regulators have commodity speculators in their sights

Photo by Natalie Behring-Chisholm/Getty Images)

Chinese commodity futures have been on a tear lately.

From coking coal to rebar, coke to iron ore, they’ve all been charging higher with gains seemingly growing by the day.

Though fundamental factors started the move months ago, it’s clear that speculative forces are now playing an increasingly important role in driving prices higher, drawing in investors left, right and centre adding to the speculative fervour.

Regulators in China certainly think so, raising margin payments on a variety of futures contracts in recent days in an attempt to quash speculative activity.

Now it looks like they’re going to go one step further to quash speculation in the markets.

According to the South China Morning Post, citing an article in the state-run Shanghai Securities News, futures brokers have been banned from providing margin financing by China’s financial regulator, the China Securities Regulatory Commission.

The tighter measures are aimed at cracking down on speculation in overheated commodities markets.

Margin financing allows investors to leverage up, using borrowed funds to bet on market performance. It is almost exclusively used to buy among Chinese investors.

It is not the first time commodity traders have been imposed with restrictive regulatory measures.

As they are doing now, exchanges hiked margin payments on commodity futures in April this year to reduce speculation in the markets, resulting in sharp reversals in many contract prices.

Given the similar action being undertaken now, the question now is whether a similar reversal in markets is coming?

Trade in Chinese commodity futures resumes at Midday AEDT.

You can read more here.

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