|Published : 01 Dec 2016, 21:46:56|
China liquidity fears trigger exodus from steel to rubber
BEIJING/MELBOURE, Dec 1 (Reuters): An exodus of cash from steel to rubber to zinc threatened a blistering months-long rally across global commodity markets on Wednesday, triggered by fresh concerns about liquidity in China, the world's second largest economy.
Retail and institutional investors scrambled to exit bullish bets and shore up cash amid government efforts to steady the sliding yuan currency and curb capital outflows.
Coking coal futures and construction product steel rebar posted their biggest one-day falls on record, while Shanghai lead and zinc led steep falls across base metals and rubber dropped sharply.
"Both longs and shorts are fleeing the commodities market," said Liu Xinwei, steel analyst at Sublime. "Capital is flowing into risk-free products, as the treasury bond prices fall and yields increase."
Yuan borrowing costs surged after the central bank pulled funds from the financial system, making investments in commodities and equities more expensive and less attractive.
Analysts said the selloff was long overdue after a months-long surge in steel and iron ore, China's largest commodity futures markets, which fed into a recent speculative surge in copper, zinc and lead.
Shanghai copper hit 3-1/2-year highs earlier this month, while steel rebar futures touched their loftiest level since April 2014 on Tuesday. Still, the reversal was stunning in both its speed and size, reflecting the major role China's retail investors with an appetite for risk play in global commodity markets.