The Stunning Chart Showing Where All The Commodity Gains Have Come From
By Tyler Durden
“The market is moving so quickly, yesterday felt just like the stock market in June last year before the crash,” warns one Asian trader reflecting on the chaotic rush of Chinese speculators into the industrial metals commodities market Echoing the frenzy that fueled China's parabolic stock market rise (and subsequent collapse), Bloomberg notes one local China broker admits “we’ve seen a lot of people opening accounts for commodities futures recently,” adding rather ominously, “the great ball of China money is moving away from bonds and stocks to commodities.” The spikes in everything from rebar to iron ore, however, according to Goldman “is not driven by a sustainable shift in fundamentals.”
Industrial metals up over 50% year-to-date, amid plunging exports and domestic zombie revival…
Since Dec 23rd 2015 when the US imposed a 256% tariff on Chinese steel imports, composite steel prices have soared almost 50% even as exports have slipped…
Trading in futures on everything from steel reinforcement bars and hot-rolled coils to cotton and polyvinyl chloride has soared this week, prompting exchanges in Shanghai, Dalian and Zhengzhou to boost fees or issue warnings to investors.
Deutsche Bank details the total crazinesss…
The onshore China commodity markets this week traded (conservatively) $350bn notional, a 17x increase on the $20bn notional that traded on Feb 1st 2016 i.e. a month ago (is it coincidence that the notional is about the same as at the peak of the equity frenzy?).
My calculations are pretty basic; I've trawled the screens and chosen 32 commodities in agri, metals and coke/coal and done a quick (contracts x value)/CNY for a dollar amount. I have not used the largest day's volume either (e.g. Deformed Bar, RBTA has traded close to $100bn, but I used closer to $60bn). Cotton (VVA Comdty) has been trading $15bn, up from $500mm in Feb. In the US, the long established cotton contract (CT1 Comdty) trades $600mm. China listed Sugar (CBA Comdty) has traded $14bn versus the US listed sugar beet at $850mm.
What this looks like!!
How much impact is this having on global markets? At first, very little. Many of the China listed futures started to bottom and rally in Nov and Dec last year, with very little relationship to global peers. This very crude chart below is a simple aggregation of all the prices of the 32 commods that I could find, but many of the underlying constituents are exactly the same. The performance looks inversely correlated with the performance of the underlying economy (and demand) but nicely related to the injection of credit.
In recent sessions, some of the US based commods have started to squeeze higher, presumably because the dog and the tail are changing places (clearly these are not apples-for-apples, as it were, in terms of contracts).
There is no correlation between the explosion in interest in Chinese commodity futures and any Chinese economic activity (and it should be a reminder to all who gaze …read more
Source: The Stunning Chart Showing Where All The Commodity Gains Have Come From
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