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News from China
Chinese car sales gain at slow pace
12th May 2016

 CHINA’S auto sales growth slowed in April, and customers may again benefit from another round of price war by dealers to drive sales.

Total deliveries of passenger cars and commercial vehicles grew 6.3 percent last month to 2.12 million units, slower than the 8.8 percent year-on-year increase in March. The passenger car market, making the bulk of the sales, rose 6.5 percent in April versus 9.8 percent in March, the China Association of Automobile Manufacturers said yesterday.
The slowdown in the sales growth showed signs of depressing demand, Zou Tianlong, UBS Securities analyst, said in a note yesterday.
Chinese auto sales growth peaked at 45 percent in 2009 and has fallen steadily as cities try to control smog and congestion with limits on new vehicles.
Automakers sold 24.6 million vehicles in China in 2015, up 4.7 percent. It was the smallest increase in three years, following gains of 6.9 percent and 13.9 percent in 2014 and 2013 respectively.
In October, China sought to boost the market by slashing the purchase tax on passenger cars with small engines.
Sales of passenger cars with engines smaller than 1.6 liters rose 12.1 percent in April from a year earlier to 1.28 million units, CAAM said in a statement.
The rough patch that China’s auto market went through last year starting from spring, which saw tepid demand followed by heavy price discounts, might be looming again.
“Our latest research shows that carmakers are all set to cut prices to fight for market share once they find the demand decreasing,” said Zou.
“We think over the next quarter or two, the industry will face the risk of another round of price reductions.”
Some foreign automakers outperformed the overall market.
General Motors said it sold 277,979 vehicles in April, up 7.5 percent year on year.
But another US automaker Ford said its sales fell 11 percent to 82,324 units last month, according to a statement.
Source: Shanghai Daily, May 12, 2016
Worries dent Chinese commodities
11th May 2016

 CHINESE commodities dived yesterday, led by 6 percent falls in steel and iron ore futures, as deepening worries about China’s demand extended a fortnight of sharp drops and false rebounds in the country’s market for industrial metals.

Speculative funds rushed into China’s commodities futures last month, betting the country’s economy was bottoming. The buying frenzy alarmed domestic exchanges and regulators feared a bubble could be forming as volumes and prices soared.

To limit speculation on futures from steel to coal, the country’s three commodity exchanges have taken steps, including raising trading margins and transaction fees, and widening daily movement caps.

The big market swings and the response of authorities have raised concerns about the risk of contagion for global markets, particularly after last year’s stock boom and bust.

Yesterday, the Dalian Commodity Exchange said it would continue to strengthen its market monitoring and may raise transaction fees further to curb speculation.

“Futures liquidity has dropped sharply following exchanges’ measures, and now investors are worried China’s economic trend will be weaker than previously expected, hurting sentiment,” said Zhao Chaoyue, an analyst at Merchant Futures in Shenzhen.

The most-traded rebar, or reinforced steel, on the Shanghai Futures Exchange saw its biggest daily fall on record yesterday. It hit a downside limit of 6 percent to 2,175 yuan (US$334) a ton, the lowest since April 7.

September iron ore futures on the Dalian Commodity Exchange also tumbled by their daily permissible limit of 6 percent to 388 yuan a ton.

Spot prices of billet, a semi-finished steel product, seen as a key reference point for the physical market, have fallen in the last few days, traders said.

The declines followed customs data on Sunday that showed iron ore imports fell 2.2 percent in April from March, while copper ore and concentrate imports shed 8 percent on the month.

High iron ore stocks

Fanning concerns about weak fundamentals, iron ore inventories at China’s big ports topped 100 million tons by the end of April, the China Iron & Steel Association said yesterday.

“Steel demand is seasonally weaker between June and August, while output keeps rising, which has been interpreted by investors as the turning point of the economic recovery,” said Zhao of Merchant Futures.

Speculative interest has focused on steel since it is seen as a lead indicator for the commodities complex, which is used at the very early stage of projects.

“In the next two to three months we might see some seasonal factors kicking in to cool prices down and drive speculative buyers away,” said Judy Zhu, an analyst with Standard Chartered in Shanghai, adding that demand should gradually improve over six to eight months.

Other steelmaking raw material futures also fell yesterday, with metallurgical coke slumping 6.9 percent and coking coal down 4.3 percent. Nickel dropped 3.3 percent.

The selling also hit agricultural futures.

China’s Dalian soybeans slid for a fourth straight session yesterday to their lowest in nearly three weeks even as strong demand from the world’s top importer of the commodity drove up benchmark US prices.

Source: Shanghai Daily, May 10, 2016
SCO to engage in Belt and Road initiative
6th May 2016

 THE Shanghai Cooperation Organization will actively engage in the Belt and Road initiative to enhance its role in regional economic development, Rashid Alimov, secretary-general of the SCO, said yesterday.

“Apart from encouraging cooperation in regional security, the Shanghai Cooperation Organization will also make the expansion of business collaboration another priority of its work,” Rashid said in a speech at the Shanghai Academy of Social Sciences as part of events to celebrate the SCO’s 15th anniversary.

“We can play a special role in accelerating the Belt and Road initiative,” Rashid said.

He said the SCO has responded actively to the Belt and Road initiative, proposed by President Xi Jinping in 2013 to revive the ancient Silk Road, and will continue to push regional economic and cultural exchanges.

In 2014, members of the SCO signed a deal in Dushanbe, capital of Tajikistan, to streamline transport of goods in the region as part of the initiative.

Yesterday, Shen Danyang, spokesman for the Ministry of Commerce, said China will soon start talks with Eurasian countries on closer economic ties. It will also begin a feasible study on a free trade deal with the SCO “at an appropriate time.”

Source: Shanghai Daily, May 6, 2016
China curbs commodity futures speculation
5th May 2016

 CHINESE regulators appear to have successfully popped a mini-bubble for now in steel and other commodity futures, scaring off speculators who piled in last month to drive steep gains in the prices of raw materials from coal to cotton.

China has vowed that it won’t allow its commodity futures markets to become a “hot-bed” for speculators, fearing that price movements not based on fundamentals could skew investment decisions and hamper efforts to rein in overcapacity.
The price of the most traded steel product on the Shanghai Futures Exchange — which jumped nearly 17 percent in just four days in mid-April — yesterday fell for the second consecutive day and has given up all of its gains since the buying flurry began.
At the same time, the level of open interest — the number of open contracts — has dropped sharply, suggesting many investors have liquidated their positions before prices fall even further.
“Speculative funds have exited the market at the moment, and I think it’s time to take a break,” said a researcher at a Shanghai-based fund, who declined to be named because he is not allowed to speak to media.
Prices retreated after commodity exchanges in Shanghai, Dalian and Zhengzhou increased transaction costs and widened trading limits, making speculative investment more difficult.
David Flanagan, chief executive of Australian iron ore miner Atlas Iron, said last month that “mom and pop” trading was affecting prices and cited a meeting with the manager of a Chinese steel mill.
“Her maid is earning a multiple of her salary by trading iron ore futures,” he said in Perth. “That has an influence on the iron ore price.”
Reinforced steel used in construction, known as rebar, led the mid-April surge, along with iron ore, coking coal and coke as investors jumped on the coattails of a rally in steel prices after China boosted spending on construction to spur growth.
The buying spread to other commodity futures including cotton and eggs, raising fears of a boom-and-bust cycle similar to China’s stock market crash last summer.
Open interest in rebar on the Shanghai exchange dropped to 2.7 million lots this week from 3.7 million lots on April 18. On the Dalian Commodity Exchange, open interest in the bourse’s most active iron ore contract declined to below 800,000 lots on Tuesday, the lowest since November.
But a surge in open interest on nickel futures in Shanghai as traders bet on a recovery in prices from 13-year lows led a broker to warn that trading in the metal could soon face curbs.
“It will probably be only a matter of time before Chinese regulators step in to dampen this trading,” brokerage Triland said in a note this week.
Open interest on Shanghai nickel has doubled to more than 650,000 lots in the past month, outstripping trade in London as traders look to improving order books at stainless steel mills in China.
Source: Shanghai Daily, May 5, 2016

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