Commodity futures linked to China's vast steel sector rebounded sharply on Friday, led by iron ore and rebar, as robust construction demand spurred buying even as the country's regulator ordered exchanges to rein in speculative trading.
Big bets on Chinese commodities futures this year from hedge funds, retail investors and others have driven up contracts on everything from iron ore to cotton, prompting many analysts to warn of parallels with a boom in China's stock markets that ended in a sharp crash last summer.
Steelmaking raw materials iron ore, coking coal and coke were set to end April with their biggest monthly gain on record.
Rebar, a construction steel product, is also headed for its biggest monthly rise ever, with volumes in the most-traded contract in Shanghai hitting a record 1.3 billion tonnes - enough to build San Francisco's Golden Gate Bridge more than 15,000 times over.
Friday's bounce, largely limited to ferrous futures, was backed by firm fundamentals, analysts and traders said, as steel demand in China continued to benefit from a seasonal pick-up.
The recovery comes as China's securities regulator ordered the country's major commodity futures exchanges this week to control speculative trading, sources told Reuters.
In response, the exchanges in Dalian, Shanghai and Zhengzhou told major institutional investors that lack a commodities background to rein in their trading, three people with direct knowledge of the situation said.
All three exchanges have launched a series of measures this week to curb speculation, including higher transaction fees, some of which have been increased more than once.
"The upward momentum is still there for the physical market. steel demand is good, while iron ore supply isn't as much as previously expected, so generally there is still potential to rise," said Wang Bing, senior broker with Orient Futures in Shanghai.
The most-active September iron ore contract on the Dalian Commodity Exchange was up 4.8 percent at 457 yuan ($71) a tonne by midday. The contract, which earlier rose by the 6 percent maximum allowed by the exchange, has gained 20 percent this month.
On the Shanghai Futures Exchange, rebar rose nearly 2 percent to 2,555 yuan per tonne. Rebar, or reinforcing bar that is used in construction, has also risen 20 percent so far in April.
"Margins at Chinese steel mills still remain healthy, which should incentivise higher production rates and stronger iron ore demand," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
Demand for spot iron ore cargoes recovered on Thursday as buyers snapped up shipments from Australian and Brazilian miners as Chinese physical steel prices rose, traders said.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI jumped 4 percent to $62.90 a tonne on Thursday, according to price assessor The Steel Index, following a four-day decline.
Other big gainers on the futures market were steelmaking raw materials coking coal and coke. Dalian coking coal rose 3.8 percent to 761.50 yuan a tonne and coke rallied 5.2 percent to 1,099 yuan per tonne.
Coking coal has gained nearly 19 percent so far this month and coke has soared more than 40 percent.
"No matter how many measures that the exchanges have imposed to curb the volatility, steel demand is firm, coke supply is short, so what do you expect?" said a trader at a small fund in Shanghai. ($1 = 6.4748 Chinese yuan)
Source : reuters.com