At the beginning of the year western commodity traders knew China, the world’s biggest consumer of raw materials, would play a decisive role in the direction of markets. What they did not know was that it would be Chinese investors as much as the country’s economic prospects driving prices.
In the past month a near-mania has gripped the country’s commodity futures markets, as an army of day traders and yield-hungry wealth managers have poured into the lightly regulated sector, often with astonishing results.
Daily trading volumes in some commodity futures contracts such as iron ore have been so large that sometimes they have exceeded China’s annual imports. Turnover in Shanghai steel futures one day last week eclipsed all
shares traded on China’s equity markets.
Alarmed by the surge in trading, which has parallels with the lead-up
to last year’s equity market meltdown, Chinese exchanges have moved quickly to increase transaction fees and margin requirements on futures contracts to try to cool some of the speculative fervour.
While this has removed some of the froth from prices, it is not clear whether this will deter the new band of investors, who have turned away from equity markets after draconian rules were imposed last year. At the same time Beijing wants to place China at the centre of global commodity markets and have prices determined and settled in renminbi.
All of this could have far-reaching consequences for the way raw materials are priced, and risks driving up the costs of commodities that are the building blocks of the global economy.
“This growth poses multiple dangers to global commodity pricing given how less regulated and therefore less protective the Chinese regimes are for investors who are perhaps the most speculative in the world,” analysts at Citi say in a report this week.
Western regulators have been wrestling with the problem of the financialisation of commodities for years, in some cases introducing position limits and curbs. Former Federal Reserve chairman Alan Greenspan said speculation was responsible for the rapid move up in oil prices in late 2007-early 2008 when they reached $145 a barrel. China is just starting to grapple with these issues.
Western commodity traders were alerted to the power of Chinese investors when a group of hedge funds led by Shanghai Chaos launched a bear raid on copper early last year.
But this time the interest has gone mainstream, with wealth management and retail investors piling in on domestic bourses such as the Shanghai Futures Exchange.
The trigger for greater speculative interest in commodities can be traced back to the credit surge engineered by Chinese policymakers this year to prop up the economy and its currency.
This led to a pick-up in construction activity and stoked investor appetite for ways to bet on the Chinese economy.
“In our view, it’s simply commodity futures’ turn given upside elsewhere appears fairly limited while prices of many raw materials, before the latest rebound, had dropped by more than 70 per cent from their peak levels in 2011,” according to analysts at Bank of America Merrill Lynch.
There certainly appears to have been a marked rise in new participants in commodities and the scale and the magnitude of that surge suggests they are deploying capital in markets they’re unfamiliar with, says Scott Hobart, portfolio manager at HFZ, which trades commodities both in China and globally. “There is a clear thirst for short-term trading and short-term risk.”
Some of the capital is probably from groups of high-yielding wealth management products sold by Chinese banks, according to Logan Wright, director of China markets research at Rhodium Group in Hong Kong.
Third-party financial institutions that invest the money have been forced into speculative strategies to deliver targeted rates of return for the bank investors, he adds.
China’s domestic bond market has been hit by defaults by state-owned or partially state-owned companies in the past year — in a market where investors assumed for years that the government would never allow a default.
That has dimmed the appeal of investing in bonds. Equally Chinese equities have also fallen more than 30 per cent in the past year.
The impact of this speculative frenzy has not just been felt in financial markets. The rise in steel prices, up more than 50 per cent this year after six years of losses, has led mills in China to restart or increase production just as the world struggles with a glut of the metal.
The world may have to get used to pricing power shifting east and the increased volatility it will bring. China’s commodity exchanges are seeking to open up to foreign traders and an international oil futures contract is expected to be launched this year in Shanghai.
Additional reporting by Neil Hume and David Sheppard
但这次的投机兴趣来自主流领域，财富管理公司和散户投资者纷纷涌入上海期货交易所(Shanghai Futures Exchange)等国内交易所。
美银美林(Bank of America Merrill Lynch)的分析师表示：“就我们看来，这只是轮到大宗商品期货了，因为其他市场的上升空间看起来相当有限，同时与2011年的峰值水平相比，许多原材料的价格在最近这波反弹之前下跌了逾70%。”
荣鼎咨询(Rhodium Group)驻香港的中国市场研究总监洛根?莱特(Logan Wright)表示，其中一些资本可能来自中国各银行销售的高收益理财产品。
尼尔?休姆(Neil Hume)和戴维?谢泼德(David Sheppard)补充报道