China's Commodity Frenzy Defies Regulatory Curb and Higher Fees

China's Commodity Frenzy Defies Regulatory Curb and Higher Fees

29 April 2016, 16:03
Roberto Jacobs

China's Commodity Frenzy Defies Regulatory Curb and Higher Fees

Last week all three exchanges, Shanghai futures exchange, Zhengzhou commodity exchange and Dalian commodity exchange all hiked commodity futures fees in order to prevent excessive speculations in China’s commodity markets, but that is hardly having any result. SHFE steel Rebar and Dalian Iron ore futures are already world’s most and third most traded contracts.

Today, volume in SHFE Steel Rebar touched 1.3 billion tons. That is enough steel to build Beijing’s Olympic stadium, known as Bird’s nest 11, 818 times or rather construct France’s Eiffel tower 178, 082 times according to Hudson Lockett in Hong Kong, published by Financial Times.

China’s big chunk of retail money, which previously pushed stock market higher at record pace, before it crumbled and led to global economic shock, has now jumping into commodities. Monthly commodity volume has spiked to Yuan 60 trillion, almost equivalent to the size of Chinese GDP. But it’s not just the Steel or iron ore, where volume is spiking, cotton and coal as well.

Recent increase in demand and temporary shortfall in steel, iron ore after government introduced fiscal measures has led to this speculative frenzy, which has become quite difficult to manage. Chinese regulators have asked all exchanges to take up steps to prevent this excessive speculation today.

While regulatory push had managed to push down prices last week, today it rebounded again rose by 6%, hitting upper circuit. It closed at 462 Yuan per ton. Since its December bottom, it is up more than 100%. It rose 20% in April. Steel rebar also rose more than 20% this month and 3% today, closing the month at 2580 Yuan per ton.

Knowing Chinese retail money’s power, it is very difficult to predict when this bubble will bust, but when it does, it won’t be pretty.

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