April 27, 2020 / 11:56 AM / a month ago

China's ICBC closes commodity-linked products to new investment

SHANGHAI/BEIJING (Reuters) - Industrial and Commercial Bank of China (ICBC) has suspended access for new investors to retail products linked to commodity futures due to extreme market volatility, including U.S. oil futures crashing below zero.

The logo of Industrial and Commercial Bank of China (ICBC) is pictured at the entrance to its branch in Beijing, China April 1, 2019. REUTERS/Florence Lo

Investors already holding ICBC’s commodity-linked retail products will not be able to add to their positions from Tuesday, but existing positions can be traded as normal, the bank said on its website on Monday

Oil prices have plunged this year due to economic damage caused by the coronavirus, a price war triggered by Saudi Arabia and Russia, and a shortage of storage for excess oil, causing steep falls in many linked products.

ICBC also warned retail investors they could lose all their investments and cash deposits in the commodity linked products.

“The debate in China is about whether those products were suitable for the retail market,” a commodity source in China said. “Commodities are a very risky investment, as oil proved last week.”

China’s regulator has told commercial banks to halt sales of a range of wealth management products that might result in unlimited investor losses, two sources told Reuters.

Prices of other commodities included in ICBC’s retail investor products, such as natural gas, soybeans and copper, have also been volatile.

ICBC’s website says these products are linked to global futures contracts.

The crude oil product is linked to WTI traded on the CME and Brent traded on ICE, while the natural gas product are linked to the New York Mercantile Exchange’s (NYMEX) futures contract.

ICBC’s copper product is linked to the futures contract on COMEX and soybean product to the contract traded on the Chicago Board of Trade (CBOT).

INVESTOR LOSSES

ICBC’s statement follows Bank of China (BoC) which last week said it would settle its crude oil futures product at a historic negative value of -$37.63 per barrel.

Retail investors may have lost more than 9 billion yuan ($1.27 billion) from BoC’s crude oil product, financial news outlet Caixin reported.

Chinese investors who traded BoC crude oil products say it should have done more to protect their interests.

BoC said last week it was deeply disturbed by investor losses and would work to protect their interests.

China Construction Bank Corp (CCB) and China’s Bank of Communications Co Ltd (BoCom) also closed their crude oil trading products to new investment last week.

Shanghai Pudong Development Bank said on Monday that its copper and soybean products for retail investors would also be closed to new investment from April 28.

Oil-focused exchange-traded products (ETPs), including the biggest U.S. oil ETP the United States Oil Fund LP, also face potential steep losses due to the WTI price drop.

Reporting by Emily Chow in Shanghai, Cheng Leng and Se Yong Lee in Beijing; Writing by Pratima Desai; Editing by Louise Heavens, Susan Fenton and Alexander Smith

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