OREANDA-NEWS. Prices and trading volumes in China's commodities futures markets have eased after regulators clamped down on "undue" speculation, but increased volatility in China may become the norm.

The Shanghai Futures Exchange (SHFE) and Dalian Commodities Exchange (DCE) raised fees and trading margins last month after turnover for all commodities on the two exchanges rose to 1.75 trillion yuan ($270 billion) on 21 April. The measures have worked, with turnover on 29 April falling by 50pc from its peak, and dropping by 68pc today, according to SHFE and DCE data.

Trading volume fell to 6.1mn contracts for the most active October-delivery benchmark rebar contract today, down by 73pc from the peak of 22mn contracts on 21 April. The rebar price fell today by 4.5pc to Yn2,451/t. September iron ore futures closed down by 2.9pc to Yn443/t, after earlier falling by as much as 5pc.

"Iron ore futures came down substantially today because of the government's intention to cool speculation in futures," a Jiangsu-based iron ore trader said. The fee increase had a delayed impact, as prices rose at the end of last week ahead of the Labour Day holiday. But prices fell today by more than the trader had expected.

"Judging by today's Yn30/t range on Dalian iron ore futures, the move to curb speculation by Chinese authorities has thinned out the volume but not the volatility," a Singapore-based paper trader said.

"The measures have had some impact and clearly the pressure is growing on the exchanges by the day," Westpac analyst Sean Callow said. "But commodity trading is not as politically sensitive as the stock market. And Chinese commodity futures are part of a globally determined market, whereas Chinese stocks are effectively self-contained. So there is a limit to how much impact even the most enthusiastic day traders can have on commodity prices."

The China securities regulatory commission said last week it will "resolutely curb excessive speculation in commodities futures markets". It asked the Chinese board of trade to strengthen market supervision, take specific measures to prevent undue speculation and "maintain a stable and orderly market".

SHFE rebar futures briefly eclipsed Nymex WTI crude as the most liquid contract in the world last month, with DCE iron ore in third place.

"Futures were definitely the froth on top" but fundamentals have driven a lot of the increase in prices and steel output, a Singapore-based analyst said.

But China's steel sector is likely add too much supply after consumption peaks in May, sending prices lower this summer. "Nothing is certain except death, taxes and zero margins for Chinese steel mills," the analyst said.