October 21, 2005

 

Friday: China soy futures settle sharply down; active liquidation

 

 

Soybean futures traded on the Dalian Commodity Exchange settled sharply lower on heavy long liquidation Friday, as concerns about the H5N1 bird flu virus resurfaced, analysts said.

 

The benchmark May 2006 contract slumped RMB65 to settle at RMB2,777 a metric tonne, after trading between RMB2,747/tonne and RMB2,826/tonne.

 

For the week, the benchmark lost RMB107/tonne.

 

Trading was very active, with total trading volume soaring to 719,740 lots from 214,852 lots Thursday. One lot is equivalent to 10 tonnes.

 

Analysts said an overnight decline in Chicago Board of Trade soybeans ignited a decline in the local market, which accelerated during the day on renewed concerns about the spread of bird flu.

 

The recent outbreak of bird flu in Inner Mongolia damped sentiment in the local market Thursday and caused a new round of concerns as there is evidence that the disease may have spread to other regions around the world, analysts said.

 

"Asia has been hit by the flu, and the disease has spread to Europe," an analyst noted. "The World Health Organization officials have warned of the danger of a pandemic and likely heavy losses in human lives."

 

Some analysts said falls in most of the other local commodities futures such as copper, rubber and fuel oil should also be blamed for the losses in soybeans.

 

"The soybean market has retreated to recent lows reached in late September, and new lows are likely to be seen if worries over bird flu worsen," said a Shanghai-based trader.

 

The disease will undermine poultry raising and thus reduce demand for feed such as corn and soy meal, indirectly reducing soybean demand.

 

Trading of No. 2 soybean contracts, which can be delivered with soybeans harvested from genetically modified crops but are seldom traded, settled sharply lower.

 

The May 2006 No. 2 contract fell RMB60 to settle at RMB2,783/tonne, while the forward September 2006 contract shed RMB64 to RMB2,826/tonne. Other No. 2 soybean contracts were untraded.

 

Dalian's soy meal futures settled sharply lower on active long liquidation caused by more bird flu concerns.

 

The benchmark May 2006 contract lost RMB71 to settle at RMB2,419/tonne, after touching its limit-down at RMB2,391/tonne. Its intraday high was at RMB2,469/tonne.

 

Dalian's futures contracts can move a maximum of 4% up or down from their previous settlement prices in a single trading day.

 

Corn futures on the Dalian exchange settled lower, dragged down by sharp falls in soy futures.

 

The most heavily traded January 2006 contract lost RMB4 to settle at RMB1,230/tonne, after trading between RMB1,227/tonne and RMB1,237/tonne.

 

China's futures trading is off-limits to foreign investors.