Iron ore鈥檚 slump from a record accelerated Friday as China ramps up efforts to control prices.
Benchmark聽iron聽ore futures on the Dalian Commodity Exchange, for September delivery, dived 7.5% to 1,173 yuan ($182.22) a tonne. The contract fell 4.4% this week.
Spot prices of聽iron聽ore with 62%聽iron聽content for delivery to China, compiled by SteelHome consultancy, had declined $12 to $220.5 a tonne on Thursday.
Chinese builders have slowed purchases of steel-based materials after prices soared to record highs
China鈥檚 cabinet on Wednesday said that government departments would step up coordination on policies to stabilise the economy and accommodate the fast increase in commodity prices, same day iron ore price surged to a聽record聽$237.57 per tonne in New York.
Officials in Tangshan, the heart of China鈥檚 steel industry, also warned its steel mills to maintain market order and safeguard companies鈥� normal operations.
The local government there said it would look into illegal behaviour including market manipulation, spreading rumours, and hoarding, and would punish and suspend businesses found guilty.
鈥淪entiment is very volatile, and the Chinese government鈥檚 control is very strict,鈥� Wang Yue, an analyst with Shanghai East Asia Futures Co told Bloomberg.
鈥淔errous metals have been falling since Premier Li pledged to control the commodities surge earlier this week, which showed the government is very much concerned鈥� about the impact on manufacturers鈥� profitability, Wang said.
鈥淧rices have already reached a peak level from a medium- and long-term perspective,鈥� Huatai Futures Co. wrote in a note.
鈥淒emand for iron ore may soften when output restrictions are implemented under the environmental push.鈥�
Inflation worries
Steelmakers in China have been ramping up production in defiance of government attempts to rein in output to control the industry鈥檚 carbon emissions, with robust profit margins enabling mills to accommodate surging input costs.
The government has already scheduled nationwide inspections of steel-capacity cuts, reiterated a commitment to reining in production from last year鈥檚 record of more than 1 billion tonnes and set targets for peak carbon emissions.
Authorities had sought to tame a range of markets this week, with Chinese bourses raising trading limits for iron ore and increasing fees for steel and coking coal. The surge across commodities helped push the country鈥檚聽factory-gate聽prices up by the most since 2017, and inflation concerns are intensifying around the world amid a broad economic recovery and vast stimulus programs.
Construction
Chinese builders have slowed purchases of steel-based materials after prices soared to record highs, but the top steel-consuming construction sector is expected to remain well supported until the rainy season slows activity from June, trade sources told Reuters.
The most-traded contracts for construction-grade steel rebar and wire rod on the Shanghai Futures Exchange have surged close to 40% this year, and over 20% since April 1, amid a stimulus-driven building boom that has helped lift the Chinese economy since late 2020.
A Guangdong-based construction firm, which normally replenishes steel product stocks every week, said the company was now buying only 5% of its usual volumes after prices soared.
鈥淲e have suspended whatever projects we can suspend,鈥� a contact from the company said.
Another builder in eastern Zhejiang province also slowed purchases and is 鈥渙nly buying materials as needed鈥� as it tracks the overheated market.
鈥淭hese steel prices are beyond the market鈥檚 acceptance,鈥� Zhuo Guiqiu, analyst with Jinrui Capital said, noting that some manufacturers also stopped taking new orders.
Spring is typically the peak season for construction in China as builders return to work after the Lunar New Year holidays and work quickly ahead of the rainy season from June.
(With files from Bloomberg and Reuters)