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Overview: Steps China Has Taken to Cap Commodity Prices

Sunday, 26 Dec 2010 01:01 PM

China, battling inflation, has vowed to crack down on speculation, hoarding and price-gouging. Here's a look at some of the actions it has taken to keep a lid on commodity prices in the last two months.

MONETARY POLICY

The People's Bank of China raised interest rates by 25 basis points on Christmas Day, the second hike in just over two months. It last raised rates in October and also increased banks' required reserve ratios three times in the past month to drain liquidity from the market.

 

ACTION ON COMMODITY TRADING EXCHANGES

The government said last week that it will maintain its crackdown on price speculation in 2011, focusing on cotton, edible oils, grains and vegetables.

China's three main commodity exchanges -- in Shanghai, Dalian and Zhengzhou -- have raised trading margins to force traders to back their positions with more cash. They also widened trading bands, allowing prices to fluctuate more without hitting the headline-grabbing up or down limits.

The three exchanges are also considering raising the lot size of their futures contracts to curb speculation, one newspaper report said.

Sugar and cotton dealers said the authorities also threatened to close trading in certain agricultural commodity contracts if there was excessive price speculation.

 

COMMODITY PRICE CONTROLS

Beijing has told state-owned coal miners to freeze annual prices for 2011, holding term volumes of coal steady and increasing output to stabilise spot prices.

Some analysts had expected China to raise prices of natural gas and power in the latter part of 2010, but the government has not announced any such increases.

The NDRC raised retail prices for gasoline and diesel by around 4 percent on Dec 22, in the third hike this year, to record highs. But the increases were still modest versus the gains in global crude markets since the fuel hike in Oct.

Four edible oil suppliers -- COFCO Ltd; Yihai Kerry, which is owned by Wilmar International ; China Textile, and Jiusan -- were ordered not to raise prices for retailers for four months, a newspaper report said on December 2.

The government also told several flour companies not to hike prices and increased wheat supplies, including offering subsidies to some flour processors to encourage them to meet demand.

The NDRC ordered local authorities to seize illicit revenues from some local oil refineries and wholesale fuel dealers for artificially propping up diesel prices, part of an effort to control prices and fight a diesel supply crunch. [ID:nTOE6AM059]

 

LOCAL MEASURES

The city of Kunming in Yunnan province has ordered the price of food staples from rice noodles to milk, to remain below Nov. 17 levels until at least Feb. 28, 2011.

The government of Fuzhou offered supermarkets subsidies to sell four types of vegetables at suggested retail prices, which caused the retail prices of the items to fall by 15-50 percent immediately, said analysts at CCB International Securities.

The government of Xinjiang, a major cotton producing area in the far west of China, announced several policies to ease transport of cotton out of Xinjiang to cool prices elsewhere.

MOOD MANAGEMENT

China's cabinet, the State Council, threatened on November 17 to impose price controls to tame inflation, and cited grains, oils, sugar and cotton as the markets it wanted to stabilise.

It later said its crackdown had the desired effect and on November 30 the top economic planning body, the National Development and Reform Commission, said it saw no need for price controls yet and any controls would only be temporary.

The government has also been quick to pounce on media stories that suggest there is a shortage in the market.

On Dec 13, the NDRC said a report of edible oil producers suspending production was "seriously in error".

RESERVE RELEASES

The State Reserves Bureau has sold off stocks of aluminium, zinc and lead, adding to market supply and cooling prices.

The government has also sold stocks of corn, wheat, soy, cotton, rapeseed oil, sugar and rice.

OTHER MOVES TO BOLSTER SUPPLY

In an attempt to calm inflationary expectations, Commerce Minister Chen Deming said last week the government will import next year to shore up reserves of sugar and meat, among other staples, to cover shortages and curb speculations. [ID:nTOE6BL05Q]

A diesel shortage broke out in October after a government campaign to crack down on power consumption prompted many factories users to switch to standalone diesel generators.

In response China's oil companies gave their refineries cash incentives to produce more diesel and switched to importing the fuel, reversing a two-year position as net exporters.

The government also slapped a punitive tax rate on fertiliser exports in December, forcing suppliers to keep their produce in China.

© 2017 Thomson/Reuters. All rights reserved.

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China, battling inflation, has vowed to crack down on speculation, hoarding and price-gouging. Here's a look at some of the actions it has taken to keep a lid on commodity prices in the last two months.MONETARY POLICYThe People's Bank of China raised interest rates by 25...
china,commodities,price,inflation,bric,economy
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2010-01-26
 

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