The price of manufactured iron ore fell after China signaled it would focus on efforts to cool price increases, warning of “excessive speculation” as concerns grew over rising inflation.
The National Development and Reform Commission, China’s economic planning agency, said on Monday to curb monopolies in commodity markets, the spread of misinformation and hoarding.
That message shattered markets on Monday with major futures contracts for iron ore dropping 7 per cent on China’s Dalian exchange rate to Rmb1,049 ($ 163) a tonne. Iron ore lost almost a quarter of the amount from hitting a record high last month. The aluminum futures contract for delivery in July fell 3 percent on the Shanghai exchange.
The Chinese government’s statement reflects its growing concerns increase in the price of commodities, which has reduced the country’s industrial recovery from the pandemic. The prospect of a global economic rebound adds more fuel to prices.
“I think there’s increasing evidence of over -speculation,” said Robert Rennie, head of market strategy at Westpac, who suggested there should be more intervention from Beijing. Stronger-than-expected demand in China and the return of global demand are the main drivers driving prices, he said.
China is the largest consumer of commodities in the world and the price of raw materials is much higher than the production costs. The price of factory gates in the country this year reached 6.8 per cent year-on-year in April falling by almost 2020.
In a statement after a meeting of China’s major metal producers, the NDRC said the price hike was linked to factors including “excessive speculation” and warned traders not to join forces to manipulating markets.
Last week, the state broadcaster CCTV quoted a meeting of the state council, chaired by Premier Li Keqiang, in which it was said that steps should be taken to prevent rising commodity prices from passing through the prices of consumer. The comments contributed to a sale of merchandise on Thursday.
China’s consumer price index remains short compared to the producer price index, with consumer demand behind the industry’s recovery. The CPI rose 0.9 percent year on year in April.
China’s economy reached pre-pandemic growth rates last year. By 2020, it has produced record amounts of steel as part of a recovery from the industry from the first coronavirus outbreak, fueled by a construction boom and increasing demand for iron ore from Australia.
An attempt at energy production carbon energy production steel, which is part of efforts to achieve new environmental goals, helped raise prices earlier this year in anticipation of supply constraints.
“One of the reasons you might be worried about keeping the minute… Is the Chinese authorities are telling the industry they want to cut the record level in steelmaking,” Rennie said.