China's Campaign to Control Commodities Goes Into Overdrive
Comment of the Day

June 16 2021

Commentary by Eoin Treacy

China's Campaign to Control Commodities Goes Into Overdrive

This article from Bloomberg may be of interest to subscribers. Here is a section:

It’s also unclear what could have triggered Sasac’s latest order on overseas positions. The regulator hasn’t ruled out further measures, including those that target specific companies under its control, the people said. A fax to Sasac seeking comment didn’t receive a reply.

The government had already asked domestic firms, including steel mills, commodities merchants and brokerages, to reduce bullish bets on local futures markets for highly volatile raw materials like iron ore and coal.

The expansion of oversight suggests Beijing is now seeking to exert a measure of control over the international benchmarks that influence commodities prices in China, as well as deterring speculation more generally among state-owned companies.

Eoin Treacy's view

Historically, exchanges have been the primary deciders of whether ebullient sentiment in futures contracts constitutes a threat to the market. Their solution is simple. They raise margin rates and make it much more expensive to hold positions. That has almost universally succeeded in bringing prices back down.

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