Morgan Stanley Says China Commodity Jump Stuns World Markets

Assessing the Health of China's Economy
  • `Now China's speculators engage commodities,' analysts say
  • Rule changes, Labor Day holiday may see prices decline

The recent spike in speculative trading in commodities in China has stunned global markets, according to Morgan Stanley, which cited a jump in local activity for steel, iron ore and cotton as well as eggs and garlic.

“Now China’s speculators engage commodities,” analysts including Tom Price and Joel Crane said in an e-mailed note on Monday. “China’s latest speculative spike has stunned global markets.”

Trading in China of commodity derivatives including steel rebar surged last week after data showing a rise in credit in the world’s top commodity user spurred speculation that prices may extend gains as demand improved. The increase prompted exchange authorities in Asia’s top economy to tighten rules on the trading of some contracts, including rebar.

“The move to cap the trade suggests that China’s enhanced credit liquidity may soon be curtailed,” Morgan Stanley said in the note. “This, together with China’s upcoming Labor Day holiday, should see a short-term pullback in trade activity and commodities prices,” it said, referring to the May 1 break.

Iron ore futures on the Dalian Commodity Exchange have rallied 48 percent this year after gaining 16 percent last week. The benchmark spot price for ore with 62 percent content delivered to Qingdao was at $66.07 a dry metric ton on Monday after sinking 0.4 percent, according to Metal Bulletin Ltd.

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