Chinese metal exchanges step up interventions as prices swing

By Dylan Duan, Samuel Shen and Lewis Jackson

SHANGHAI/BEIJING, Feb 3 (Reuters) - Chinese commodity exchanges raised margin requirements across a number of metals contracts this week, the latest moves in a more than two-month campaign by Chinese exchanges to rein in huge price swings in the assets.

Chinese regulators have a long history of trying to curb sharp market swings, and the latest push follows a boom in copper, gold, silver, lithium and other metals since November that has been accompanied by regular sharp corrections.

A fresh bout of volatility kicked off on Friday after U.S. President Donald Trump's pick of a new Fed chair sparked the steepest two-day drop in decades in precious metals.

Prices for copper and tin on the Shanghai Futures Exchange are also down by 8% and 18%, respectively, from the peaks they set on Thursday.

The Shanghai Futures Exchange raised margin ratios for silver on Tuesday, while the Guangzhou Futures Exchange lifted price limits and margin ratios for platinum and palladium. The Shanghai Gold Exchange has adjusted margin ratios for gold and silver contracts three times this week.

Several Chinese banks also issued warnings this week about precious metal market volatility and raised margin ratios for related lending, including China Merchants Bank and the Bank of China.

"The market was losing sense, so there's fear of boom-and-bust," said Cui Rong, head of Shanghai Weiti Investment Consulting Co.

DOZENS OF INTERVENTIONS SINCE RALLY KICKED OFF

"Compared with overseas counterparts in the U.S. or London, Chinese exchanges are likely more active in such measures as the last thing regulators want to see is huge volatility burning investors," Cui added.

Those interventions are a handful of the dozens made by regulators since the rally kicked off in November.

The Shanghai Futures Exchange intervened 22 times in metals markets in December and January - from raising margin requirements to capping the number of new positions traders can open - more than the previous seven months combined.

An increase in margin requirements mandates a higher capital outlay for market participants, which can dampen speculation, reduce liquidity, and push traders to unwind positions.

At the Guangzhou Futures Exchange (GFEX), home to a major lithium contract as well as platinum and palladium contracts, officials made sixteen similar interventions in January and December, more than the rest of last year combined.

The numbers are Reuters calculations based on both exchanges' official releases.

VOLATILITY CONTINUES

Prices have remained volatile despite the big step up in interventions. The Guangzhou exchange raised margin ratios in late January, only for prices to fall, rise and then fall again by around 8%, just short of the daily limit, over three consecutive days shortly afterwards.

The Shanghai Futures Exchange raised margin ratios for copper and gold on Monday and Wednesday last week. Prices for the metals would go on to fall 14% and 20%, respectively, over the four subsequent trading days.

"Chinese exchanges should have tightened margin requirements more aggressively when prices were rising," said Yuan Yuwei, fund manager at Trinity Synergy Investments.