China said to order companies to check risks in commodity trades
Sunday, 30 November 2014
BEIJING, Nov 29 (Bloomberg): China asked state-owned companies to investigate risks associated with commodity trading, said people familiar with the matter, as the government seeks to avoid losses amid a price slump for raw materials.
The State-owned Assets Supervision and Administration Commission ordered companies under its regulation to manage any expected losses in their commodity trading businesses, according to the people, who asked not to be identified because the order hasn't been made public. The administration also asked them to end trading that requires large amounts of money and isn't related to their main business, the people said.
The move signals regulators' intent to head off a repetition of cases in the last decade in which state-owned companies lost hundreds of millions of dollars in commodities trades gone bad. The Bloomberg Commodity Index of 22 raw material is poised for a fourth yearly decline as oil futures are set for the biggest slump since the 2008 financial crisis.
"This might just be a warning shot across a few bows, reminding state-owned companies of their responsibilities," Jeremy Goldwyn, London-based head of business development in Asia at broker Sucden Financial Ltd. "Year-end often causes businesses and banks to unwind and close out positions in order to repay loans. Perhaps this is a not-so-subtle reminder not to roll over anything that shouldn't be there?"
Officials from SASAC didn't respond to a faxed request for comment today.
China is the world's largest importer of commodities from iron ore to soybeans. The country is headed for the slowest economic expansion since 1990.
In 2008, Citic Pacific Ltd., a unit of China's biggest investment company, reported HK$15.5 billion ($2 billion) in losses from unauthorized currency trades. China Aviation Oil Singapore Corp. (CAO) lost $550 million in 2004 on oil futures.
And China may have lost as much as $300 million in 2005 after a trader at the State Reserve Bureau sold copper in London he didn't own on speculation prices would fall. They instead rose to record highs.