We warned that this was not real demand-driven but purely credit-fuleed malinvestment here, and today, as Credit Suisse notes, we seem to have got confirmation as these metals are tumbling after China raises margins/commission on metal futures.
Credit Suisse explains:
Some metal commodity turn negative after china apparently increase the commission for some metal futures.
DCE raises margin requirement on iron ore contracts which is hitting gold, silver, copper, rebar etc (Lion Shi) –unconfirmed.
They are indeed, for example one of the biggest beneficiaries of the recent parabolic move such as rebar.
Indeed, this is the biggest drop in over a month for Rebar – since the last parablic squeeze:
Credit Suisse then adds that:
If true, it will have the bears saying something like “see, we were right that commodity prices were just up on liquidity recently pumped into the system rather than real demand, China is telling us that with this move.”
It appears that was correct and this chart inevitably will revert.
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.
As inventories continue to drop.
So soaring prices were not a signal of soaring demand after all as yet another credit-engineered bubble that needs to be burst by the government central-planners that created it, before it too gets out of hand.
Perhaps China realized that enabling its zombie steel mills to produce at record output levels (as credit markets begin to shut) may have unintended consequences after all – i.e. a bigger glut, especially compared to ‘real’ demand.
This article is brought to you courtesy of Tyler Durden From Zero Hedge.