China warns metal industry of ‘zero tolerance’ for speculation as commodity prices soar
- The powerful National Development and Reform Commission has told key players in the metal industry it is cracking down on illegal activity
- At a meeting on Sunday, companies were told they must take the lead in maintaining ‘orderly prices’ for commodities that hit record highs early this month
China has stepped up efforts to curb skyrocketing raw material costs that pose a threat to economic recovery, summoning representatives of its metal industry at the weekend to warn them against any moves that would bid up prices.
The National Development and Reform Commission vowed on Sunday to show “zero tolerance” for illegal activity, including price fixing, spreading false information, hoarding or any speculative activity, according to a statement released after the meeting with the key companies in iron ore, steel, copper, coal and aluminium.
Beijing has grown increasingly concerned in recent weeks that a surge in raw materials costs could threaten the nation’s economic recovery from the coronavirus pandemic.
Parties have given feedback that there has been excessive speculation and hype
Some smaller private sector manufacturing firms have temporarily halted production because of the sharp increase in input costs. That has stoked concern that higher industrial prices will drive up consumer inflation, dampening spending that the government is counting on to power growth.
“Many parties have given feedback that there has been excessive speculation and hype, which has disrupted the normal process of production and sales and contributed to the price spike,” the NDRC said in a statement posted to its website on Monday.
The commission and four other ministerial departments told the companies at the meeting, including several state-owned firms, they must take the lead in maintaining “orderly prices” for commodities.
The China Nonferrous Metals Industry Association (CMRA) and China Iron and Steel Association (CISA) were among those that attended on Sunday.
Ge Honglin, former chairman of state-owned aluminium firm Chinalco and the current president of the CMRA, told a forum in Beijing on Saturday that some entities wanted to push up prices to boost profits and had “underestimated” Beijing’s resolve.
There was a growing consensus in the business community that “the power of capital and the drive for money” were behind the spike in prices, Ge said, adding many considered state intervention necessary to curb speculation on grounds of national economic security.
“The supply-and-demand fundamentals of commodities have not changed substantially, nor do [metal production] costs support such a large increase in prices,” Ge said.
To increase domestic supply and put downward pressure on prices, it also pledged to raise export tariffs on certain steel products, temporarily eliminate duties on importing pig iron and scrap steel, and remove export tax rebates on some steel goods.
02:27
Cryptocurrency volatility highlighted by China’s recent crackdown and Elon Musk comments
Following the announcement last week, domestic commodity prices fell sharply. Price indices of thermal coal, iron ore and steel rebar dropped 15.9 per cent, 6.5 per cent and 9.4 per cent, respectively, from their peak prices the previous week, according to the Nanhua Futures.
“The State Council stressed it would ensure supply, so the restraints on supply are expected to ease and commodity prices such as those for steel and coal are likely to return to rationality,” Liang Zhonghua, chief macro analyst at Haitong Securities, wrote in a note on Monday.
Chen Xing, chief macro analyst at research institute of Zhongtai Securities, wrote in a note on Saturday the rapid rise in industrial product prices might be close to the end, and the country’s PPI is about to peak.
