Chinese steel and iron ore futures fell deeper into bear market territory on Thursday, as the country's exchanges unveiled more measures aimed at dampening the type of speculative trading behind a powerful rally last month.
The aggressive steps to limit speculative buying have helped fuel a retreat in raw materials from steel to coal after the mid-April upsurge that inflated volumes and prices to levels that some analysts felt defied fundamentals.
On Wednesday, the Dalian Commodity Exchange said it would set a maximum open interest limit for the trading of a single contract in a certain period, excluding business for hedging purposes. The move is aimed at preventing investors from taking excessive positions.
The action was on top of higher trading fees and other measures that Dalian and commodity platforms in Shanghai and Zhengzhou have imposed since late April.
"The exchanges' measures have dampened speculative trading and squeezed out a lot of money," said Wu Qiuzi, an analyst at Yong'an Futures in China's Hangzhou city.
With steel prices down
more than 25 percent from their peak in April, there is a risk that Chinese producers that resumed production will have to rethink.
"Profitability has fallen over the past month and that means the mills are not going to chase that extra tonnes. But it doesn't suggest that demand is going to fall away completely," said Daniel Hynes, commodities strategist at ANZ Bank.
Hynes expects China's steel market to remain relatively tight.
Rebar, or reinforced steel used
in construction, closed down 3.6 percent at 2,074 yuan ($319) a tonne on the Shanghai Futures Exchange, pulling further away from a 19-month high of 2,787 yuan reached on April 21.
On the Dalian Commodity Exchange, the most-traded iron ore contract slumped 3.4 percent to 373 yuan a tonne, down 25.7 percent down from its April peak.
Shanghai hot rolled coil dropped 3.1 percent and Dalian coke, another steel raw material, fell 1.8 percent.
Agriculture Futures Rise
Agricultural futures gained sharply with soymeal futures at one point rising by the 6 percent maximum allowed by the exchange and rapeseed meal climbing as much as 5.7 percent.
The gains came after the Zhengzhou Commodity Exchange said it would effectively raise trading fees for some institutional investors for rapeseed meal futures contracts from Friday.
A report from the U.S. Department of Agriculture that suggests a "tighter supply outlook has encouraged investors to bet on agriculture products," said Wu at Yong'an Futures.
The USDA in its monthly supply-demand report on Tuesday put global soybean ending stocks for 2015/16 and 2016/17 at below analysts' forecasts.
Dalian soymeal closed up 5.2 percent after rising by its 5 percent upside limit on Wednesday. Zhengzhou cotton rose nearly 2 percent.
Zhengzhou rapeseed meal rose 4 percent after the Zhengzhou bourse said it would lift fees for some institutional investors from the night session tomorrow and would stop offering a 50 percent cut in transaction fees.
($1 = 6.5081 Chinese yuan)
(By Manolo Serapio Jr; Additional reporting by Ruby Lian; Editing by Ed Davies)