Chinese Commodities Rally on Hopes of Stimulus to Boost Economy

Published: 4 July, 2016 08:25

Chinese commodities from nickel to cotton surged on Monday (July 4) on hopes Beijing will unleash more stimulus to prop up a sluggish economy, brightening the outlook for raw material demand.

An official survey on Friday (July 1) pointed to China’s weak manufacturing sector in June with export orders and inventories falling and factories shedding more workers.

“There are headwinds in the domestic market and exports and for the government to achieve its macroeconomic targets they need to focus on more stimulus in the second half of the year. That will be good for commodity demand,” said Helen Lau, an analyst at Argonaut Securities in Hong Kong.

Chinese commodities have mostly outperformed stocks this year as investors see more upside potential after a glut hit the sector hard.

A rally in commodities in April caused prices and volumes to soar and forced exchanges to step in to curb speculative activity.

The gains also reflect a recovery in risk appetite among Chinese investors as the immediate fallout from the British vote to exit the European Union eases.

Rebar and iron ore among the most-traded

Rebar and iron ore, which hit the highest in two months, were among the most-traded commodity futures.

Rebar on the Shanghai Futures Exchange rose as much as 5.3 percent to 2,468 yuan ($370) a tonne and iron ore on the Dalian Commodity Exchange advanced as much as 4.9 percent to 441.50 yuan per tonne.

Rebar closed 3.4 percent higher at 2,424 yuan and iron ore ended up 4 percent at 438 yuan.

Both extended last week’s gains that were spurred by low steel inventory levels and efforts by Beijing to consolidate its steel sector.

“The tight supply and expectation of more fiscal stimulus by the government to shore up the economy may continue to boost sentiment in both spot and futures market,” said Lau.

Cotton and nickel also on the up

Among other commodities, the most-traded cotton contract on the Zhengzhou Commodity Exchange rose by its maximum allowed 5 percent to close at its highest since May 2014.

Shanghai nickel surged by its 6 percent upside limit to the strongest since November and tin jumped as much as 7.5 percent to the highest since last May.

Nickel was supported by worries about mine closures in the Philippines as the country’s new mining minister announced plans to review all mines in the country, the biggest supplier of nickel ore to China.

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