By Manolo Serapio Jr and Ruby Lian
MANILA/SHANGHAI (Reuters) - Chinese commodities prices spiraled lower on Friday, with steel futures suffering their worst week since 2009, as more money flowed out of markets whose surge two weeks ago unnerved global investors and forced regulators to step in to restore calm.
Indicating how authorities may now be alarmed after a collapse in volumes and prices, the Dalian Commodity Exchange on Friday said it will cut some trading fees on contracts such as iron ore and coking coal.
The commodities slide spilled over into stocks, with the Shanghai Composite Index ending down 2.8 percent, its worst day since February, as commodity producers fell.
Commodities linked to China's steel sector, which led the mid-April rally, were the hardest hit on Friday, on worries that demand in the world's biggest steel consumer could soon wane. The selloff spread to agricultural products including soybeans, eggs and cotton.
Some traders were concerned that China's interest rate easing cycle could be over even as optimism about prospects for the world's No.2 economy faded.
The retreat pulled prices of many of the commodities below levels in mid-April, when a buying frenzy, pinned on retail investors, bloated volumes and drew comparison with the boom-and-bust cycle in China's stock markets last year.
"It's panic now and capital is flowing out of commodities markets amid a cautious outlook on the economy," said a trader at a fund in Shanghai.
The price declines suggest that Chinese exchanges have more than succeeded in popping the bubble, after commodity platforms in Dalian, Shanghai and Zhengzhou launched measures to curb speculative buying.
LOSING FAITH IN STEEL DEMAND
Investors have been losing faith in Chinese steel demand for May and June.A tighter steel market following shutdowns of Chinese mills in the past year and a seasonal pickup in demand helped spur prices in the past two months. But producers have since ramped up output and once-shut plants have also resumed production.
"The steel mills have started to become cautious towards the market after the really crazy rally. At the same time they don't think demand will be sustainable," said Wang Di, an analyst at CRU consultancy in Beijing.
The most-traded rebar - or reinforcing bar used in construction - on the Shanghai Futures Exchange fell as far as 2,281 yuan ($351) a tonne, the weakest since April 11.
It clawed back some losses to end at 2,336 yuan, down 0.9 percent, but still finished the week down around 10 percent, the steepest weekly decline since the bourse launched rebar futures in 2009.
Rebar - where traded volume in the most-active contract last month was enough to build San Francisco's Golden Gate Bridge more than 15,000 times over - had fallen 16 percent from its April peak.
Iron ore on the Dalian Commodity Exchange also cut losses to end the day down 1.3 percent at 417.50 yuan a tonne after earlier hitting 404.50 yuan, the weakest since April 18. But the weekly drop was also 10 percent, the most since July 2015.
Other steel raw materials fell more sharply on the day with coking coal down 4 percent and coke falling 6.6 percent. Nickel, used to make stainless steel, dropped 4.5 percent.
A stronger U.S. dollar also weighed on commodities, said Wang Bing, a senior broker with Orient Futures in Shanghai.
"Technical indicators showed that short investors are quite strong now," said Wang.
Other losers on Friday in China included eggs, which fell 3.8 percent, soybeans which slid 3 percent and cotton that dropped 1.4 percent.