China’s steel and iron ore futures are set for their worst monthly performance on record as a stronger US dollar weighed on commodities from copper to gold during May.
After a burst of speculative trading in the first four months of the year, China’s steel rebar contract has fallen 28 per cent this month, its worst performance since it started trading in 2009.
Chinese futures exchanges have introduced measures to curb speculative trading after a surge in steel prices led mills to restart production just as the world is suffering from a glut of the metal.
That has helped curb trading volumes while a stronger US dollar has weighed on many commodity prices, apart from oil, as it makes them more expensive for non-US users. The dollar has strengthened against a host of currencies, including the renminbi, on expectations that the Federal Reserve may increase borrowing costs this summer.
Iron ore stocks at Chinese ports are now at their highest levels since 2014, while steel production has approached record levels. Daily steel production this month was close to its historical record high of 2.4m tonnes, according to Argonaut Securities.
Iron ore futures in China are on course for a 24 per cent decline this month, their worst since launching in 2013. Spot iron ore for delivery to China fell to $49.50 a tonne on Tuesday, according to The Steel Index.
Copper and gold are both facing their biggest monthly drop in six months.
Copper has dropped more than 7.3 per cent this month to trade at $4,671 a tonne on the London Metal Exchange. Strong imports during May into China have left the market well supplied, according to analysts.
Jessica Fung, an analyst at BMO Capital Markets, said: “We would not be surprised to see further price declines near term because June is typically the weakest month for copper prices, and there is potential for further US dollar strength as a summer Fed rate hike is increasingly priced in.”
Gold hit its lowest level in more than three months at $1,200 a troy ounce on Monday before rebounding to trade at $1,221.8.
Sugar lost 1 per cent after hitting a near two-year high on worries about a bigger than expected fall in supplies. ICE July sugar rose as high as 17.70 cents a pound before falling to 17.34 cents.
Sugar has rallied about 15 per cent since the start of the year on concerns of a widening deficit in production over supply, and hedge funds and other financial investors have piled in.
Oil prices strengthened in May with the Brent and West Texas Intermediate benchmarks rising above $50 a barrel for the first time this year. Oil prices rose on Tuesday ahead of an Opec meeting in Vienna on Thursday with Brent crude futures up 0.3 per cent at $49.93 a barrel.
Source: Next.ft