09 September 2010 09:55 [Source: ICIS news]
By Chow Bee Lin
SINGAPORE (ICIS)--China’s linear low density polyethylene (LLDPE) futures fell by 2.8% on Thursday as the government’s move to mop up liquidity and growing concerns about an imminent interest rate hike triggered a round of panic selling, local futures brokers said.
The most actively traded January contract on the Dalian Commodity Exchange (DCE) closed at CNY10,475/tonne ($1,540/tonne) on Thursday, CNY305/tonne or 2.8% lower from Wednesday’s settlement, according to DCE data.
A record high value of central bank bills issued by the People’s Bank of China on Wednesday was expected to mop up excess liquidity in the market, and that led investors to withdraw from the futures market, said China International Futures’ analyst, Hong Bin Ye.
"The three-month central bank bills worth CNY17bn are the highest value of bills the bank had issued in the recent months," said Ye.
Meanwhile, concerns about an interest rate hike was gaining traction as soaring prices of a wide range of commodities, including steel and non-ferrous metals, in the past months, indicated that inflationary pressure was mounting despite earlier government measures to contain it, said research director of Wangda Futures, Chen Wang.
"The government is expected to ease inflationary pressure through raising the interest rate, and that would in turn tighten liquidity further,” he said.
Prices of industrial products had been rising partly because local production had been curbed by China’s power restrictions, he said.
A gradual recovery in China’s real estate market over the recent weeks also pointed to persistent inflationary pressure, said Wang.
The wide spread between LLDPE futures and the physical LLDPE markets also raised fear that futures prices were due for a downward correction, said Yongan Futures Broker’s chemical and energy analyst, Liang Kong,
"The spread was close to CNY1,000/tonne at one point yesterday, which was way above the usual CNY400-500/tonne spread,” said Kong. LLDPE had been trading around CNY9,900/tonne ex-warehouse in the physical market, he said.
The January contract traded as high as CNY10,855/tonne on Wednesday, before closing at CNY10,810/tonne, according to DCE data.
Rumours of a local natural rubber futures brokerage being investigated for alleged market manipulation stoked fear of a general clamp down on speculative trading on the futures markets, leading investors to withdraw from the market, a third local futures broker said.
($1 = CNY6.80)
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