China rubber probe talk triggers commodities fall-UPDATE 4

Trade the News

Friday September 10, 2010 03:46:10 PM GMT

* Shanghai rubber futures fall 4 percent

* Zinc leads other commodities lower, but prices rebound

* Top rubber trader says it has no knowledge of probe (Adds Zhejiang Dadi statement)

By Niu Shuping and Tom Miles

BEIJING, Sept 9 (Reuters) - Chinese commodity futures prices slid on Thursday in a widespread sell-off that several market participants attributed to talk of an investigation into trading on the Shanghai rubber market.

Shanghai rubber futures led the slide, with the most active contract down 3.8 percent by the close of trade, after hitting a two-year high at the start of the day. The falls also weighed on international agriculture futures, base metals and crude oil contracts.

Several market players said the Chinese Securities Regulatory Commission (CSRC) was investigating a dealer from Zhejiang province.

Officials at the CSRC were not immediately available to comment. The Shanghai Futures Exchange referred questions to the Zhejiang branch of the securities regulatory commission, where officials also declined to make an immediate comment.

One rubber futures trader, Zhejiang Dadi Futures Co, said it had received no notification of a probe into its activities in commodities futures. Earlier, market participants had said the company's rubber futures market position was being investigated.

"Our company is operating as normal, and has not received any written or oral notification on an investigation in the company's commodities futures trading from the regulator or exchange," said Zhejiang Dadi in a statement on its website (www.ddqh.com).

Chinese regulators have repeatedly tried to crack down on trading practices that could inflate prices for the raw materials that feed the country's vast manufacturing economy.

The government is also keen to keep a tight rein on speculation by its fleet of state-run companies and to stop local government money getting into risky investments.

Shao Qing, an analyst with Shanghai-based Dalu Futures Co. Ltd, likened the situation to the impact of a rumoured probe into the white sugar market early this year and expected the sell-off to be short lived.

"This was just a short-term panic. The rubber market is still fundamentally positive because of an overall supply shortage."

After the market opened, futures prices for zinc, copper, aluminium, soybeans, soyoil, soymeal and cotton all fell.

Spot and futures prices for construction steel on the Shanghai market also lurched lower, bucking the trend of rising prices over the course of the week.

Market participants were unsure how much impact any probe would have.

"If it's illegal fund activity, then it normally comes down to liquidation of positions, but that depends on what kind of positions they have and whether they decide to get out before it happens," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney. (Reporting by Niu Shuping, David Stanway, Kang Xize and Tom Miles in BEIJING, Alejandro Barbajosa and Rujun Shen in SINGAPORE, Samuel Shen in SHANGHAI; Editing by Michael Urquhart)

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