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China Raises Futures Margins to Cool Commodity Speculation, Curb Inflation

China’s futures exchanges, where the world’s top four agricultural contracts are traded, are increasing margins as part of a wider government crackdown on commodity speculation and food prices.

Deposits to trade soybeans, soybean meal, soybean oil, palm oil, corn, polyethylene and polyvinyl chloride contracts will increase to 10 percent from as much as 7 percent on Nov. 29, the Dalian Commodity Exchange said today. The daily price limit rose to 6 percent from as much as 5 percent, it said. Dalian’s move follows similar measures by the Shanghai and Zhengzhou bourses.

China, the biggest consumer of raw materials, has pledged to control prices, and may increase interest rates a second time this year to slow the fastest inflation since 2008 and curb food costs that jumped 10.1 percent in October. The nation has already made trading commodity futures more expensive to cool excessive speculation.

Increasing margins “is an effective way to deter those speculators that leverage too much,” Tian Feng, analyst at BOC International (China) Ltd., said today. A margin is the percentage of a contract value traders deposit with brokers.

Soybeans, soybean oil and palm oil contracts in Dalian have dropped as much as 12 percent from the highest levels in more than two years on Nov. 10 after the government announced moves to cool trading. The Dalian bourse said today it may take further measures.

Speculators Exit

The National Development and Reform Commission, the top economic planning agency, said yesterday commodity prices had declined in response to the government’s moves to “clamp down strictly on market manipulation and other illegal activity, and curb excessive speculation.”

“Some funds have left commodities markets such as cotton, following moves by the exchanges,” said Du Ying, analyst at Wanda Futures Co., one of the biggest cotton brokers on the Zhengzhou bourse. “There may be more downside as we are now in a sensitive period in terms of government policies.”

The government has also sold aluminum, zinc, lead, sugar, cotton and corn from stockpiles this year to ease shortages.

September-delivery soybeans in Dalian dropped 1.1 percent to 4,318 yuan a ton today, soybean oil declined 1.2 percent to 9,350 yuan and palm oil fell 0.7 percent to 8,626 yuan.

Natural rubber futures in Shanghai fell by the exchange limit of 5 percent today to 30,375 yuan a ton. Cotton in Zhengzhou also fell by 5 percent to 24,320 yuan a ton.

Shanghai, Zhengzhou

The Shanghai Futures Exchange, where the world’s top three metals contracts trade, has said it will increase margins for copper, aluminum, steel wire, gold and fuel oil to 10 percent. They gain to 12 percent for steel-reinforcing bars and zinc, and to 13 percent for rubber, after the market close on Nov. 29.

Steel rebars, zinc and copper were the most traded metals contracts in the first six months, according to the Futures Industry Association. Volume for steel rebars jumped 1,412 percent and for zinc 282 percent, while copper fell 35 percent from a year ago, association data show.

The Zhengzhou Commodity Exchange raises margin requirements for cotton, rice and sugar contracts to 12 percent at the settlement today, the bourse said in a Nov. 24 statement. Margins for rapeseed oil, hard wheat and purified terephthalic acid increase to 10 percent, it said today.

White, or refined, sugar in Zhengzhou was the world’s most- traded agricultural futures contract from January through June, according to the futures association. Shanghai rubber and the Dalian soybean-meal and soybean-oil contracts followed.

CME, ICE

Volume for the Zhengzhou sugar contract more than tripled from a year earlier, and Shanghai rubber more than doubled, the association figures show.

The Chinese exchanges’ steps may have a limited effect on world commodities prices, partly because trading is closed to outside investors. The exchanges are open to domestic companies and foreign businesses that operate in China and buy and sell commodities as part of everyday activities.

CME Group, the world’s biggest futures market, this month raised the amount of money traders must keep on deposit for soybean futures by as much as 10 percent. ICE Futures U.S. increased margins for cotton and London-based LCH.Clearnet raised robusta coffee, cocoa and white-sugar charges.

--Feiwen Rong. Editors: Richard Dobson, James Poole

To contact the Bloomberg News staff on this story: Feiwen Rong in Beijing at hsun30@bloomberg.net

To contact the editor responsible for this story: James Poole at jpool4@bloomberg.net

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