BEIJING Chinese steel and steelmaking raw materials futures plunged on Wednesday as investors rushed to liquidate bullish bets as soaring bond yields renewed concerns about liquidity in the world's second-largest economy.
Coking coal and steel rebar registered their biggest one-day drop on record while investors also sold base metals to shore up cash, with Shanghai zinc and copper futures falling sharply on the day.
Technical and computer-driven selling added further pressure for a second straight day of heavy selling after China's major commodity exchanges introduced further measures aimed at taming a spectacular months-long rally.
The most-traded May coking coal futures on the Dalian Commodity Exchange notched up their biggest one day loss on record, falling 8.09 percent to 1,295 yuan ($188) a ton.
Steel rebar for May delivery on the Shanghai Futures Exchange ended down 6 percent at 3,040 yuan ($442) a ton, its largest ever one-day drop.
The liquidation threatened a months-long rally that had pushed prices to their highest since April 2014 on Tuesday.
May iron ore on Dalian fell 6 percent to 566.0 yuan ($82) a ton, one of its largest percentage falls since futures launched three years ago.
Even after the sell-off, rebar prices ended the month up 13 percent and iron ore closed November with a whopping 23-percent gain.
Overnight yuan borrowing costs in Shanghai surged to a two-month high on Tuesday on tight liquidity in the market after the central bank pulled funds from the financial system, traders said.
"There's a liquidity crunch in China so that's not good for commodities in China," Helen Lau, analyst at Argonaut Securities said. "The speculators and retail investors have big (long commodity) positions, so the swings in prices are amplified."
Long- and short-term bond treasury bond yields in China jumped for a second day, with the 14-day bond yields hitting their highest since end-March as concerns rose about liquidity in the banking system.
A reduction in China's steel capacity along with a push to spend more on infrastructure has fueled a 90 percent spike this year in prices of construction steel product rebar.
Coke slipped 4.0 percent.
(Reporting by Josephine Mason; Editing by Richard Pullin and Vyas Mohan)