China Vows to Curb Commodities Speculation After Trading Frenzy

  • Bourses must strengthen oversight, curb speculation: CSRC
  • Futures traded on one day last week surged to $261 billion

China’s top financial regulator has pledged to prevent excessive speculation in commodities futures markets after a record bout of trading in everything from steel bars to cotton pushed up prices.

Bourses must strengthen market oversight and curb speculative trading, Zhang Xiaojun, a spokesman for the China Securities and Regulatory Commission said at a briefing in Beijing on Friday. Exchanges took steps including raising trading fees and shortening hours after a sudden burst took the value of futures traded on Thursday to $261 billion, the same volume as the U.S. equity market. Prices of rebar jumped 20 percent over four days last week, aluminum advanced to a 10-month high and cotton surged.

There is one fundamental reason for some commodities to advance. The government pumped credit into Asia’s biggest economy in the first quarter, spurring a pick-up in sectors including construction. Still, the CSRC is concerned that big swings will trigger market risks and fuel abnormal volatility, according to people familiar with the matter.

Trading volume on the three main venues -- Dalian Commodity Exchange, Shanghai Futures Exchange and Zhengzhou Commodity Exchange -- has already declined in the wake of tighter trading rules. Total value fell to 980 billion yuan ($151 billion) on Thursday when about 24 million contracts traded, according to data compiled by Bloomberg. That’s above levels a year ago when 16.7 million contracts changed hands worth 718 billion yuan.

Goldman Sachs Group Inc. has expressed concern about the surge in speculative trading in iron ore, pointing out that daily volumes are now so large that they sometimes exceed annual imports. The amount of cotton traded in Zhengzhou on one day last week was enough to make 9 billion pairs of jeans, or at least one for every person on Earth.

— With assistance by Martin Ritchie

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