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Bubble warning as iron ore futures smash records
Luo Guoping and Yang Ge
Dec 23, 2020 – 4.12pm
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Iron ore futures soared to all-time highs this week in China, more than doubling from April levels, prompting the local exchange operator to warn of a speculative bubble as Beijing sent signals that could foreshadow government intervention.

As the producer of more than half of the world’s steel, China is also the biggest iron ore importer and its largely state-owned production complex employs thousands around the country.


China's steel industry relies on Australian iron ore. Qilai Shen

Accordingly, producers and officials in Beijing closely follow the price of iron ore – one of the main components of steel production – and have pushed for China to play a larger global role in determining its price.

That price has soared in recent months, with the benchmark contract on the Dalian Commodity Exchange rising nearly 10 per cent on Monday alone to 1144.5 yuan ($231) a ton – a record since the contracts began trading in 2013.

The price represented a 50 per cent jump from the levels of late October and was more than double the price of early April when many factories were closed or partially shut down at the height of China’s COVID-19 epidemic.

trade tensions are running high between China and Australia, the world’s biggest supplier, leading to concerns about possible future disruptions.

China has recently slapped anti-dumping tariffs on Australian products, including wine and barley, and it has stopped importing Australian coal.

Australia earlier took steps to block Chinese telecom equipment from being used in its 5G networks, and as other tensions flare related to the global pandemic.

Some of the nation’s top steelmakers say the recent price spike defies simple imbalances between supply and demand and is well above market expectations.


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At a December 10 meeting of the China Iron and Steel Association, some leaders said the spike represents an “obvious sign of capital speculation”, according to a statement released on the association’s website after the meeting.

A senior industry analyst said the market is not in a state of imbalance, since stockpiles have not dwindled to levels that would normally be considered very tight.


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He noted that even though spot prices have climbed, the level of those increases was still well below the jump in prices for futures contracts.

He said the recent spike could be due to accelerating concerns that supplies could get tighter in the future. “That’s causing a year’s worth of rises to get expressed in a single month,” he said.

At an industry forum last Thursday, an official from China’s Ministry of Information and Industry Technology pointed out that China’s State Council had taken note of the recent spike in prices.

Such signals often point to looming government intervention aimed at stabilising markets.