REGULATORS in China 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, fell for the second consecutive day yesterday 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.

    Prices retreated after commodity exchanges in Dalian, Shanghai and Zhengzhou increased transaction costs and widened trading limits, making speculative investment more difficult.

    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 the stock market crash last summer.

    Open interest in rebar on the Shanghai exchange fell to 2.7 million lots this week from 3.7 million lots April 18. On the Dalian Commodity Exchange, open interest in its most-active iron ore contract fell to less than 800,000 lots Tuesday, the lowest since November 2015.

    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. (SD-Agencies)