Iron and Steel, after ground breaking rally in last month and priors, on China’s commodity speculation frenzy in under steady decline this year.
Iron ore prices in China’s Dalian Commodity Exchange, declined more than 5% again today to Yuan 363 per ton. After hitting multi-year low in December, Iron price jumped more than 70% to reach Yuan 480 per ton in April. Similar happened to steel, after reaching Yuan 1580 in December, they went up by around 80% or more to reach Yuan 2850 per ton.
In April, on a single day, volume in China’s steel Rebar future contract rose to 1.3 billion tons, more than enough to make Eiffel Tower, more than 11,000 times or almost equivalent global production in a whole year. To curb this speculative frenzy, costs were raised by all commodity exchanges through China, including increase in required margin. SHFE rebar future costs were raised from 0.006% to 0.01%.
And after reaching their recent high in April, price slumped around 25%.
So, it must be the actions taken by Chinese regulators to curb speculative activity.
Not really. These cost were raised on 25th April but prices rose on both 28th and 29th.
Look closely, and you will see, as China released its April economic dockets (PMI, trade figure), which showed weakness and increased worries that stimulus are not going to be that effective like prior, these declines accelerated.
That surely make us wonder, are these commodities, once again falling in line with fundamentals.