It's a bloodbath in Chinese commodity futures

Photo by Kevin Frayer/Getty Images

It’s went from bad to worse for Chinese commodity futures on Wednesday.

One look at the final scoreboard needs no other word but “ouch”.

  • SHFE Copper ¥46,300 , -4.28%
  • SHFE Aluminium ¥13,255 , -3.60%
  • SHFE Zinc ¥22,585 , -7.02%
  • SHFE Nickel ¥91,300 , -5.69%
  • SHFE Rebar ¥3,000 , -7.01%
  • DCE Iron Ore ¥556.00 , -7.95%
  • DCE Coking Coal ¥1,294.50 , -8.09%
  • DCE Coke ¥1,775.00 , -8.93%

It was carnage, with many contracts, including rebar and iron ore, finishing limit-down for the session.

Quite simply, the only thing that prevented them from falling further was they weren’t allowed to based on market rules, at least for this session.

The declines followed a string of storming gains in the previous week, with the reversal starting on Monday evening following tighter restrictions being placed on traders by regulators.

This was done in an attempt to reduce speculative forces that were responsible for most of the recent gains.

It’s clearly been effective, with the carnage seen today underlining just how much of a casino these markets have become.

A spike in short-dated Chinese interest rates could also have exacerbated the price declines with 14-day bond yields hitting the highest level seen since March.

“There’s a liquidity crunch in China so that’s not good for commodities in China,” Helen Lau, analyst at Argonaut Securities, told Reuters. “The speculators and retail investors have big (long commodity) positions, so the swings in prices are amplified.”

Dalian May 2017 Iron Ore Future. Source: Thomson Reuters Eikon

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