China commodities rally on hopes of measures to counter Brexit...

China commodities rally on hopes of measures to counter Brexit

28/06/16 20:50

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   Columns of steel are stacked inside the China Steel production factory in Kaohsiung, southern Taiwan
   • Steel, iron ore futures extend sharp gains
   • Soymeal, soybeans lead agriculture commodities higher
   • Expectations of improved liquidity to counter Brexit
   Commodity futures in China from steel to soymeal rallied on Tuesday, as investors bet on countries bringing in measures to counter the shock to markets and economies from Britain's vote to leave the European Union.
   Chinese steel futures jumped for a second day, while the rally spread to other commodities.
   "I think there is a fresh wave of speculation," said Yang Zhijiang, an analyst at China Merchant Futures.
   China's commodities markets had recently calmed after a roller-coaster ride started in April, when soaring prices and volumes prompted exchanges to curb speculative activity.
   Yang said there were expectations that countries will boost liquidity or take other steps to counter the impact of the British vote.
   South Korea's presidential Blue House said the government plans to propose an extra budget of around 10 trillion won ($8.55 billion).
   Other analysts pointed to better supply and demand, and firmer markets overseas.
   In the steel market, the most-traded rebar on the Shanghai Futures Exchange SRBCv1 closed up 2.5 percent at 2,265 yuan ($341) a tonne, after touching a seven-week high of 2,288 yuan.
   The most-active iron ore on the Dalian Commodity Exchange DCIOcv1 climbed 4.4 percent to end at 419 yuan a tonne, after also hitting a seven-week peak of 423 yuan.
   Both contracts surged by their 6 percent ceiling on Monday, following news of a planned restructuring by steelmakers Baosteel Group <600019.SS> and Wuhan Iron and Steel Group <600005.SS>, reflecting China's efforts to consolidate its steel sector.
   Chinese steel inventories dropped 1.4 percent to 8.84 million tonnes on June 24 from the prior week, said Argonaut Securities analyst Helen Lau.
   Inventories have fallen for the past five weeks, said Lau, adding that the utilisation rate at China's blast furnaces is also 9 percentage points below the same period last year.
   "Against these low steel inventory and low utilization rates, there is room for steel prices to increase in our view, given that current steel prices are around 30 percent lower than the same period last year," Lau said in a note.
   Among agriculture commodities, Dalian soymeal DSMcv1 rose 5.2 percent, while cotton CCFcv1 and rapeseed meal CRSMcv1 - both traded in Zhengzhou - advanced 4.1 percent and 5 percent, respectively.
   Dalian soybeans DSAcv1 gained 2.9 percent after rising as much as 3.5 percent intraday to the highest since September. Dalian egg DJDcv1 surged 2.6 percent and palm olein DCPcv1 climbed 2.7 percent.
   Tha gains in Chinese-traded soybeans eclipsed Chicago soy Sv1 which hit a one-week high on forecasts of dry U.S. weather and Chinese demand. ($1 = 1,170.0500 won) ($1 = 6.6495 Chinese yuan)