Commodities Fall on China Tightening Speculation, Higher Exchange Margins
Commodities dropped on speculation that China, the biggest consumer of everything from aluminum to zinc, will increase borrowing costs and after the country’s exchanges increased margins to curb speculation.
The Thomson Reuters/Jefferies CRB Index of 19 raw materials dropped 0.4 percent to 301.11 as of 2:39 p.m. in New York, led by cotton, silver and coffee. Gold futures for February delivery fell 0.8 percent, the most since Nov. 16, and palladium slumped as much as 4.5 percent.
China, also the largest user of coal and iron ore, has pledged to contain consumer costs after inflation sped up to its fastest since 2008 and food prices jumped 10.1 percent in October. The government may cut the target for new lending next year, Shanghai Securities News reported. The country’s futures exchanges will raise margins to discourage speculators after the market closes on Nov. 29.
“China is going to tighten, no doubt about it,” said Jesper Dannesboe, a senior commodity strategist at Societe Generale SA in London. Given a lack of clarity as to how much borrowing costs may rise, “it’s difficult for commodities to rally,” he said.
Commodities also fell on mounting military tension on the Korean peninsula and as a stronger dollar increased the cost of commodities denominated in the currency. South Korea said North Korea may have conducted artillery drills, after its neighbor warned of retaliation to any encroachment of its sovereignty. The greenback rose to a two-month high against a six-currency basket.
Korean Situation
The Korean situation “just adds to the uncertainty in the region, and the same set of uncertainties is driving the dollar,” Dannesboe said.
Copper futures for March delivery fell 0.4 cent, or 0.1 percent, to close at $3.7625 a pound on the Comex in New York, extending this week’s decline to 2.1 percent. Nickel futures for March delivery dropped 1.2 percent to $22,564 a metric ton on the London Metal Exchange.
China’s central bank raised interest rates last month for the first time since 2007 and ordered banks on Nov. 10 and Nov. 19 to hold more money in reserve. China’s new loans next year will likely be close to 7 trillion yuan ($1.05 trillion), less than this year’s target of 7.5 trillion yuan, Shanghai Securities News reported, citing an unidentified person.
Gold Declines
Gold futures for February delivery fell $10.70 to settle at $1,364.30 an ounce on the Comex. Palladium futures for March delivery declined $18.60, or 2.7 percent, to $678.85 an ounce on the New York Mercantile Exchange, paring this year’s advance to 66 percent.
“The main negative factor is the firm dollar,” Carsten Fritsch, a Frankfurt-based analyst at Commerzbank AG, wrote in a report today. “The increase in the margins for gold futures trading on the Shanghai Futures Exchange is also having an adverse effect.”
The Shanghai Futures Exchange has said it will raise margins for copper, aluminum, steel wire, gold and fuel oil to 10 percent. The Dalian Commodity Exchange said today it will increase futures margins and price limits as part of the wider government crackdown on speculation and food prices.
Corn futures for March delivery fell 0.1 percent to $5.53 a bushel on the Chicago Board of Trade, and soybeans for January delivery declined 1.3 percent to $12.385 a bushel. Cotton futures for March delivery tumbled 4.1 percent to $1.1176 a pound on ICE Futures U.S. in New York.
Increasing Margins
Increasing margins “is an effective way to deter those speculators that leverage too much,” said Tian Feng, analyst at BOC International (China) Ltd.
Commodity exchanges in the U.S. and Europe including CME Group Inc., the largest futures market, and ICE already have increased the cost of trading some raw materials in response to a jump in volatility as prices surge.
Oil fell on concern that Ireland’s debt crisis will spread to Portugal and Spain, limiting economic growth and diminishing fuel demand. Crude oil for January delivery slipped 10 cents to settle at $83.76 a barrel on the New York Mercantile Exchange.
Traders are speculating that Ireland’s debt crisis will spread to other European Union countries, according to data compiled by Bloomberg. European Central Bank council member Erkki Liikanen said in a speech published today that policy makers may keep support measures in place for longer “if required.”
To contact the reporters on this story: {Stuart Wallace} in London at swallace6@bloomberg.net; {Nicholas Larkin} in London at nlarkin1@bloomberg.net
To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net
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