It’s not just metals caught up in China’s commodity fever.
The equivalent of 41 million bales of cotton traded in a single day on the Zhengzhou Commodity Exchange last week, the most in more than five years and enough to make almost 9 billion pairs of jeans, or at least one for every person on the planet. Prices that had slumped to the lowest on record in February surged almost 19 percent in the four days leading up to the trading spike on Friday.
Traders have piled in to Chinese commodity markets, sending volumes of everything from steel to coking coal soaring and prompting exchanges to boost margins and fees or issue warnings to investors. The surge in trading is reminiscent of last year’s equities rally that boosted the stock market before a rout erased $5 trillion. China is the world’s largest consumer of cotton and second-biggest producer.
‘Record low levels in February and March sparked buying interest from both inside and outside of the cotton industry and also triggered speculation, which resulted in mounting bets in Zhengzhou futures,’ said Liu Qiannan, a Beijing-based cotton analyst at Galaxy Futures Co. ‘With massive investment and encouragement from the crazy steel and iron ore market in China, sentiment then turned to bullish from bearish.’
This post was published at David Stockmans Contra Corner on April 28, 2016.
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