Steel and iron-ore prices in China plunged on Wednesday after exchanges there lowered the daily trading limit and raised margin requirements in an effort to curb speculation.
Shanghai steel-rebar futures for delivery in December pared some losses in late Asia trade to close 5.1% lower at 3,044 yuan ($441) a metric ton. Dalian iron-ore futures for delivery in January ended down 6.0% at 598 yuan a ton.
“We expect to see more consolidation in the commodity futures markets and a possible spillover in equity markets,” Argonaut Research said in a report.
In China, commodity markets are dominated by speculators and short-term retail investors, as well as hedge funds with abundant liquidity.
The recent rally in metal prices was largely driven by Chinese investors on hopes that demand would pick up in China and the U.S., particularly after President-elect Donald Trump’s surprise win, analysts say.
The Wednesday selloff by Chinese investors also hit base metals trading on the London Metal Exchange.
Three-month copper futures in London fell nearly 1.0% to $5,653 a ton before trading up 0.8% at $5,750 a ton in late Asia trade. Aluminum futures were last up 0.3% at $1,727 a ton, reversing from a 0.7% decline to $1,709 a ton earlier in the session.
Expectations that the U.S. Federal Reserve would raise interest rates in December also weighed on commodity futures. As most commodities are priced in U.S. dollars, a stronger dollar would make imports into China and other emerging markets more expensive.
Most investors are now bracing for a rate increase following stronger than-expected U.S. economic growth, which was revised to 3.2% for the third quarter.
Analysts say that the recent rally in most metals had run ahead of fundamentals and that the market was therefore overripe for a price correction, though the fundamentals look positive in the medium to long term.
“In the past, extreme market positioning was often followed by a counter-movement in the price, especially since copper and the other metals have become detached from the fundamental data,” Commerzbank said in a research note.
Recent sharp gains in metals were in steel and steel-related commodities such as zinc and nickel, which are predominantly used in galvanized steel and stainless steel. Zinc futures on the London Metal Exchange rose to a nine-year high earlier this week.
Moody’s said in a report released Wednesday that the outlook for Asian steelmakers next year is negative on weakening earnings amid declining production and lower profitability.
“For 2017, we see India as the only area of strength—with rising demand and protectionist measures in place,” said Jiming Zou, vice president and senior analyst at Moody’s.
Asian steel-production volumes are expected to fall in 2017 on weaker demand from China—which accounts for about three quarters of steel production in the region—while rising trade barriers will constrain exports from Asia, Moody’s said.
Source:wsj.com