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Steel product futures plunge as regulators issue warning

Commodities futures started showing signs of being tamed on Friday after Chinese exchanges hiked transaction fees earlier in the week, amid rising attention from the Chinese government and market regulators’ warning to steel mills.

Most traded futures contracts for iron ore, hot-rolled coils and coking coals have shown signs of faltering, from historically record high levels, during night trading on Thursday. The declining trend continued into morning trading on Friday.

Iron ore futures were down nearly 10 percent, with hot rolled steel down 6 percent and coking coal declining 6.5 percent, as of press time on Friday.

Market regulators in Tangshan, North China’s Hebei Province, on Friday summoned all the iron and steel companies in the city and warned them to stay away from any pricing abnormalities, including speculations and hoarding of goods.

Regulators noted that the surge of steel prices has far exceeded that of the rise of iron ores and threatened to impose “severe” penalties, even including revoking of business licenses, if steel makers are found to have engaged in illegal pricing activities.

Tangshan, the world’s largest steel-producing city and dubbed as China’s steel capital, produced about 14 percent of China’s raw steel in 2020.

Affected by receding futures prices, spot prices for a number of commodities also receded.

Wang Jianfu, assistant to the general manager at Shanghai-based consulting firm Steelhome, told the Global Times on Friday that futures prices tend to be very sensitive to market information once they have reached a periodic peak.

“Runaway commodity prices have been mentioned by top Chinese authorities for at least three times in the past month,” Wang said, noting multiple factors, including authorities’ attention and exchanges’ hiking of transaction fees may be behind the faltering of futures prices for iron ore, coal, steel and others.

“Both futures and spot prices will be affected by this round of price adjustment,” Wang said, noting that domestic steel prices have risen to levels on par with that of the overseas market.

Futures prices have hit through the roof in the past two weeks.

A senior executive at a shipbuilding company in Wuhan, Central China’s Hubei Province, described the situation as “extremely abnormal,” noting that such futures prices hikes are not the same as mild price inflation that benefits economic growth.

The Shanghai Futures Exchange and the Dalian Commodity Exchange both issued statements on Monday targeting bulk commodity prices, such as iron ore, aiming to curb them in order to stabilize the market.
Source: Global Times

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