China iron ore, steel slide after curbs, but other commodities extend rally- By Manolo Serapio Jr

Labourers work on a pile of iron ore at a steel factory in Tangshan, Hebei province, China, in this November …

By Manolo Serapio Jr

MANILA (Reuters) - Iron ore and steel futures in China fell back again on Tuesday after authorities raised transaction costs to cool rapid gains that had raised concerns that an unstable speculative bubble was forming.
However, other commodity futures, including coking coal, kept surging.
China's top commodity exchanges in Dalian, Shanghai and Zhengzhou have increased trading margins and fees in response to surges in prices and volumes last week that were not matched by an improvement in the fundamentals for most of the underlying commodities.
The intervention by the exchanges helped stall the rally in steel and iron ore futures, which had led the surge.
The most traded September iron ore contract on the Dalian exchange was down 4.6 percent at 457 yuan (49 pounds) a tonne by midday, having dipped as low as 453.50 yuan. It hit 502 yuan on Monday, its strongest since August 2014.
Analysts say the spike is largely due to speculators betting that a rise in infrastructure spending in China will lift raw material prices, which have been battered for years by a broad-based glut.
But analysts say the rise could flip into an equally precipitous fall.
"The speculation-driven futures rallies are not sustainable, and consolidation may have some spillover effects on the spot market," Argonaut Securities Helen Lau said in a note.
On the Shanghai Futures Exchange, rebar - reinforced steel used in construction - fell 2 percent to 2,602 yuan a tonne.
Rebar reached a 19-month high of 2,787 yuan on April 21, when its turnover was worth nearly 50 percent more than the total value of trade on the Shanghai stock exchange.
Open interest in iron and rebar has fallen sharply, suggesting some of the trades are being executed by investors holding short positions that are getting squeezed.
But coking coal on Dalian surged more than 5 percent to a contract-high of 837.50 yuan a tonne on Tuesday, extending Monday's gains. Coke rose 4 percent, also to a contract-high of 1,142 yuan per tonne. The two steelmaking commodities each soared by their 6 percent limit on Monday.

Cotton on Zhengzhou Commodity Exchange rose as much as 3.6 percent.

Jin Tao, analyst with Guotai Jun'an Futures in Shanghai, said there is a "severe shortage" of coking coal and coke following shutdowns of mines and plants in China last year as steel mills step up production.

That has fuelled a big spike in spot prices of the two raw materials, particularly this month, said Jin.
"Whether the rally can be sustained will depend on whether the government will keep reining in the sector. But falling forward contracts suggest investors remain cautious on the outlook," he said.
(Reporting by Manolo Serapio Jr.; Additional reporting by Ruby Lian in Shanghai; Editing by Will Waterman)

Culled from Reuters