Iron ore tumbles as China investigates speculative moves in futures markets

Photo by Tim Graham/Getty Images

Iron ore spot markets fell on Tuesday amidst reports Chinese regulators were investigating speculative trading activity in the nation’s commodity futures market.

That hammered futures initially, and spot markets followed suit.

According to Metal Bulletin, the spot price for benchmark 62% fines slid 1.14% to $91.27 a tonne — the fourth fall in five sessions and partially reversing the 2% gain of Monday.

Despite the renewed bout of weakness, the benchmark price finished February with a gain of 9.5%, extending the gain so far in 2017 to 15.7%.

Both higher and lower grade ores fell during Tuesday’s session.

“China’s spot rebar prices retreated on Tuesday after surging a day earlier, as the futures market nosedived,” said analysts at Metal Bulletin.

“An investigation by Chinese authorities on institutional investors to determine if they engaged in speculative or ‘non-conforming’ investment behaviour weighed heavily on the futures market, resulting in all of the rebar contract’s gains on Monday being wiped clean, and then some.”

According to Bloomberg, China’s top economic planner — the NDRC — is investigating whether speculation has distorted commodity futures markets in China, contributing to the recent spike in producer and consumer price inflation in recent months.

Citing unnamed sources familiar with the investigation, Bloomberg said the NDRC questioned futures brokers earlier this month on whether distortion had occurred.

Based on data supplied by Thomson Reuters, the average daily trading range for the May 2017 iron ore future on the Dalian Commodity Exchange has been 3.2% so far this year, coinciding with a rally of more than 16% over the same period.

In the past eight sessions alone, the average daily trading range has been a whopping 4.2%.

Despite driving futures markets lower on Tuesday, news of the investigation wasn’t enough to deter buyers with many contracts clawing back earlier losses in overnight trade.

Iron ore and rebar finished with losses of more than 1.4%, although that was higher than Tuesday’s day session close.

Elsewhere other commodity futures finished higher.

SHFE Copper ¥48,470 , 0.94%
SHFE Aluminium ¥14,180 , 1.87%
SHFE Zinc ¥23,085 , 0.74%
SHFE Nickel ¥90,930 , 0.01%
SHFE Rebar ¥3,495 , -1.94%
DCE Iron Ore ¥695.50 , -1.42%
DCE Coking Coal ¥1,280.00 , 1.63%
DCE Coke ¥1,763.00 , 2.08%

Trade in Chinese futures will resume at midday AEDT, the same time that Chinese manufacturing, non-manufacturing and steel industry PMI reports for February will be released.

They carry the potential to create significant short-term volatility in futures markets.

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