China announces ‘zero tolerance’ crackdown on commodity-market speculators

China has been trying for weeks to cool the fervor around certain commodity prices, which have been soaring since the start of the year, in part due to optimistic global growth expectations as economies emerge from the COVID-19 pandemic.

In a statement that might curl the toes of traders elsewhere, the body vowed that regulatory authorities will track commodity prices and beef up supervision of the related futures and the spot market (a public financial market where commodities are traded for immediate delivery). It promised “zero tolerance” for illegal activities, such as “reaching agreements to implement monopoly, spreading false information, driving up prices” and hoarding.

In China, iron-ore futures on the Dalian exchange tumbled near the daily limit on Monday, with steel dropping over 5%, Bloomberg reported. Mining stocks in London were under pressure, with shares of Rio Tinto RIO, -0.03% RIO, +0.30% down 0.7% and BHP BHP, -0.12% BHP, -0.66% down 1%.

Corn  CN21, -0.23% and soybeans  SN21, -0.29% futures were under pressure on Monday, as were Comex-listed iron ore TIOM21, ,  steel  HRNM21, +0.81%,  and palladium  PAM21, -1.51% PA00, -1.51%, though copper HGN21, +1.28% HG00, +1.28% moved modestly higher.

On a continuous contract basis, steel futures HRN00, +0.81% have gained 67% year-to-date, while iron-ore futures HRN00, +0.81% are up about 31%. Copper has gained about 28%. The S&P GSCI index  SPGSCI, +1.33%, which tracks 24 exchange-traded commodity futures contracts, has climbed 24% year to date, as of May 24.

In its statement, China’s National Development and Reform Commission appeared to take a dim view of speculative trading. “This round of price increases is the result of multiple factors, including international transmission factors, but also in many aspects that reflect excessive speculation, disrupting the normal production and sales cycle, and contributing to the price increase,” it said.

Jeffrey Halley, senior market analyst at Oanda, said that in the bigger picture, raw materials aren’t far off their highs, even after the latest threat, which adds to recent moves by China. Over a week ago, the Dalian Commodity Exchange increased trading limits and margin requirements for some iron-ore contracts.

“Given that China is a large net importer of ores, there is a limit to what they will be able to achieve in the medium to long term. However, in the short term, their rumblings seem to be having the desired effect,” Halley told clients in a note.