China asked state-owned enterprises (SOE) to investigate risks associated with commodity trading, people familiar with the matter said, as the government seeks to avoid losses amid a price slump for raw materials.
The State-owned Assets Supervision and Administration Commission (SASAC) 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 has not been made public. The administration also asked them to end trading that requires large amounts of money and is not related to their main business, the people said.
The move signals regulators’ intent to head off a repetition of cases in the past 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,” said 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 did not respond to a faxed request for comment yesterday.
China is the world’s largest importer of commodities from iron ore to soybeans. The country is headed for its slowest economic expansion since 1990.
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