Commodity prices hit record highs, Beijing rushes to interview industry bigwigs to stabilize market

Rapidly rising prices of commodities such as iron ore, steel, copper and aluminum have forced Beijing to intervene, warning influential companies in related industries not to manipulate prices and push them up.

China’s National Development and Reform Commission (NDRC) and five other government departments interviewed executives of key commodity companies on Sunday morning (May 23), warning them against excessive speculation and violations such as spreading false information to fuel the continued rise in commodity prices. The NDRC also made it clear that the government has a “zero tolerance” stance on commodity price manipulation and hoarding by companies.

The other four government departments that participated in the interviews were: China’s Ministry of Industry and Information Technology, the State-owned Assets Supervision and Administration Commission, the General Administration of Market Regulation and the Securities Regulatory Commission. The companies interviewed are key enterprises with strong market influence in the iron ore, steel, copper and aluminum industries. In addition, industry organizations such as the Iron and Steel Industry Association and the Non-Ferrous Metals Association also participated in the interviews.

Since this year, many commodity prices have continued to rise sharply, with some varieties reaching record high prices, causing global concern. China’s National Development and Reform Commission said that the current round of price increases are the result of a variety of factors, both international conduction factors, but also many parties reflect the existence of excessive speculation, disrupting the normal production and marketing cycle, the price increases have contributed to the role.

However, observers point out that what China’s National Development and Reform Commission did not mention is that the Chinese government’s use of trade weapons to impose sanctions on Western countries has had a direct impact on the rapid escalation of commodity prices. Since April last year, China has retaliated against Australia by imposing tough sanctions on a range of Australian exports to China, including common commodities such as barley, seafood, timber and wine, as well as bulk commodities such as iron ore, copper and coal. China has a high demand for these commodities and the restrictions on imports of these commodities have caused great fear in the Chinese market, fuelling price increases.

Prices of metal products saw a sharp shock on Monday after the Chinese government stepped in to govern the market and crack down on speculative activities. Steel prices fell sharply, dropping by up to 6 percent. Iron ore prices also fell, although they stabilized before the market closed. Most metal commodity prices were under strong selling pressure.

U.S. financial media Bloomberg quoted Li Ye, an analyst at Shenyin Wanguo Futures in Shanghai, as saying, “With policy risks turning and government intervention, commodity prices are naturally affected by market sentiment.” “The sharp climb in commodity prices has had a significant impact on manufacturers and market order, leading to losses and defaults.”

However, Citi believes that many commodity prices are now near decade-highs and that the Chinese government, despite constant warnings, has not done much other than make some adjustments to trading rules in the futures market. Citi believes that Beijing may be facing the dilemma of “few policy options left”.