The catalyst for the chill was reports that China’s government will strengthen what it termed the management of commodity supply and demand to curb “unreasonable” increases in prices - action that has so far seen the spot iron ore price retreat by almost 15% since its record high of $235.55 a tonne on May 12.
The spot price of iron ore for delivery to North China, as assessed by commodity price reporting agency Argus, dropped to $200.90 a tonne on May 21, a third consecutive losing session.
The decline in China’s main domestic iron ore futures market, the Dalian Commodity Exchange (DCE), was more pronounced: front-month contract slid 5.4% last week to end at 1,090.50 ($172) a tonne.
The selling continued on Monday, with the most-traded iron ore contract for September delivery on the DCE sliding as much as 9.5%, almost hitting the day’s downside limit of 10%. That left it at 1,016 yuan a tonne, its weakest since April 15.
What China’s pledged action means in practice is stepping up supervision of trading and trying to manage stockpiles of commodities, coupled with efforts by exchanges to raise the cost of trading.
In some ways this amounts to more talking the market down, with Beijing using its considerable powers of persuasion to try and force market participants to toe the line for what it deems to be the greater good.
