Cisa urges Beijing to probe iron ore price rise

China's central government is paying "close attention" to the sharp rise in prices of imported iron ore and should investigate the causes for this increase, the China iron and steel association Cisa said.

Cisa has sought regulatory efforts to rein in what it describes as chaotic price movements and ensure prices are reasonable. Physical and futures markets have been disturbed since yesterday by market discussions that government agencies are looking into iron ore price volatility in the Dalian commodity exchange (DCE) futures market.

The government has neither confirmed any formal investigation nor has any target of an investigation been identified.

"It is hard to say if such investigations will get any result confirming that someone went against the law while trading iron ore. But this showed the attitude of the government at the highest level on iron ore price rise and the market will see more policy pressure to control prices," said a manager at a north China-based mill.

The most active iron ore contract on the DCE closed lower by 5.85pc today after falling by 4.46pc yesterday.

Physical markets, which often follow price movements in futures market, have also fallen rapidly. The Argus ICX 62pc index fell by 2.65pc at $122.05/dry metric tonne and the Argus 62pc portside index slid by 1.6pc yesterday. Offers for PB fines in the portside market were down by 1.5-1.7pc this morning.

But the investigation expectations are unlikely to hold down iron ore prices for much longer unless some clarity emerges on the investigation scope and targets, as a large part of the price increase since February has been caused by a supply crunch in Australia and Brazil that still persists. But Cisa said the price increase was overdone.

The supply-demand relationship of iron ore has not changed fundamentally, but the price of imported iron ore has risen sharply in the latter part of this year and this is unsustainable, said Cisa vice-president Qu Xiuli at a steel industry conference in Shanghai. The output of foreign mines has gradually recovered while domestic mines have increased output. Portside stocks are still at a high level, while the production growth rate of steel enterprises will gradually fall back and the supply of iron ore may exceed the demand in the second half of the year, she added. Portside imported iron ore stocks in China are the lowest since 2017 at 115mn-120mn t.

DCE iron ore trade is highly liquid with more than 25.9bn t traded in 2018. Steel mills and commodity trading firms trade the futures but a high level of retail trading drives much of the volume. DCE periodically has adjusted its rules on position size limits, fees and margins to curb what it describes as "excessive speculation".