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China Steps in Again to Restrain Its Commodity Traders

  • Exchanges hike trading fees for some contracts as prices jump
  • Government said to plan meeting with ZCE to discuss trading

China’s once again trying to restrain its commodity traders following a spike in prices from coal to rubber, six months after the government stepped in to deflate a speculative bubble.

The Shanghai Futures Exchange urged investors to trade rationally and maintain market stability amid an increase in volatility of some contracts. The bourse increased fees for steel and rubber futures Tuesday, while Zhengzhou Commodity Exchange raised charges for thermal coal for the fourth time in less than three weeks and Dalian Commodity Exchange hiked transaction fees for coking coal and coke. Separately, the publisher of a key coal benchmark suspended two price indexes.

It’s not the first time the nation’s commodity traders have been subdued. The exchanges took similar steps half a year ago when short-term retail investors charged into everything from iron ore to cotton, driving up prices and stoking fears of a bubble. While there hasn’t been the explosion in trading volumes seen across markets in April, the recent surge in coal, coke, rubber and steel has been enough to prompt authorities to take action.

“The government is compelled to regulate the market again as overplayed speculation in coking coal and coke futures attract liquidity in the country and spread enthusiasm to other products such as rebar and nickel and copper,” Wei Lai, an analyst at Cofco Futures Ltd., said by phone from Shanghai.

QuickTake China's Market Meddling

Thermal and coking coal futures have hit the highest level since their debut in 2013, while zinc surged to the highest since 2011. Steel rebar, nickel, tin, iron ore and rubber futures also jumped to multi-year highs.

Commodity trading is also drawing the scrutiny of the National Development and Reform Commission, the country’s top planner and price regulator. NDRC officials plan to meet with representatives of the Zhengzhou Commodity Exchange on Wednesday to discuss trading in thermal coal futures and efforts to curb illegal activity, according to people with knowledge of the plan.

Volatile Trading

Coal trading has been particularly volatile in recent weeks. Thermal coal futures in Zhengzhou fell 5 percent on Tuesday from the previous day’s settlement to 637 yuan per ton, dropping by the daily limit. The exchange last week announced its third fee hike after previously increasing fees on Oct. 24 and Oct. 26. Coking coal on the Dalian Commodity Exchange rose to a record Tuesday. Trading volumes and the number of outstanding bets on ZCE rose to unprecedented levels last month as winter supply concerns prompted a jump in prices.

Separately, Shanxi-based suspended publication of two of its indexes because they were deemed to be incomplete or not rigorous enough and causing “unnecessary” swings in prices. temporarily paused publication of its CCI5500 and CCI5000 indexes, which track benchmark thermal coal prices at the port of Qinhuangdao, the company said in a statement on its website on Tuesday. The indexes have been reflecting “partial” spot transactions, which was causing price volatility, the publisher said.

The government of President Xi Jinping is trying to cool coal prices by allowing some major miners to increase production after efforts by regulators earlier this year to cut supply sent prices soaring. The nation’s benchmark Qinhuangdao thermal coal price rose to an average of 700 yuan a ton as of Monday, the highest since June 2012, according to the China Coal Transport and Distribution Association. Meanwhile, spot seaborne metallurgical coal advanced to near $300 a metric ton, according to The Steel Index.

“It shows that the government is determined to rein in coal prices and one of its measures is to curb speculative activity on the futures market,” Yu Jie, a Shanghai-based analyst with Galaxy Futures, said by phone. “In the near future, the thermal coal contract probably wouldn’t rise above the high reached on Monday.”

Zhengzhou will adjust transaction fees for same-day trading on thermal coal contracts to 30 yuan ($4.42), effective from Tuesday night trading, the exchange said in a statement on its website. It will charge an additional 30 yuan per contract on transactions with trading volume exceeding a certain level, starting from night trading on Nov. 11. Dalian will raise coking coal futures margin requirements by 11 percent, it said in a statement.

— With assistance by Ben Sharples, Alfred Cang, and Jing Yang

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