Efforts underway to curb China's commodity price hikes

Aerial photo taken on Sept. 24, 2020 shows staff members sampling iron ore powder at Dalian port in northeast China's Liaoning Province. (Xinhua/Yao Jianfeng)

BEIJING, May 26 (Xinhua) -- Faced with recent price hikes in bulk commodities, China is ratcheting up regulatory efforts to fend off rising raw material costs and stabilize the market.

Since the start of this year, the world's largest metal consumer has registered record-high prices for some bulk commodities. Its producer price index, indicating costs of goods at the factory gate, rose by 6.8 percent year on year in April, a new high over the past three years.

With the booming prices sparking concerns over cost pressure on downstream companies, the country has tailored measures to ease supply-demand imbalance and ramp up market regulations to root out behaviors bidding up commodity prices.

The country's lastest move came on Sunday as five state agencies conducted a regulatory talk with key companies with market influence in sectors such as iron ore, steel, copper, and aluminum.

During this meeting, the enterprises were urged against irregularities such as price manipulation, making and spreading false information on price hikes, price gouging, and hoarding.

The authorities, meanwhile, vowed to closely monitor the trend in commodity prices, strengthen regulation over the co-movement between the futures market and spot market of bulk commodities, and adopt a zero-tolerance attitude on irregularities.

In response to the regulatory talk, Shendong Coal Group, one of the country's largest coal producers, said it would strive to keep coal prices within a reasonable range and increase output to ensure a stable supply.

China has attributed the price rally in commodities to both domestic and overseas factors. Authorities stressed that the price surge is partly driven by the transmission of global price increases. Excessive speculation in the market, however, has also pushed up the prices.

Developed countries' stimulus packages have driven up global demand for bulk commodities, said Robin Xing, an economist with Morgan Stanley.

On the other hand, the production capacities of some major bulk-commodity exporting countries have yet to recover from COVID-19 lows, which gives rise to supply-side bottlenecks, Xing said.

Aiming to increase steel imports and ensure domestic supplies, China has applied a provisional zero import tax rate on pig iron, crude steel, recycled steel raw materials, and ferrochrome, starting May 1. It also raised export tariffs on ferrosilicon, ferrochrome, and high-purity pig iron.

Facing commodity price hikes, last week's State Council executive meeting, accordingly, reiterated the implementation of such tariff measures to strengthen readjustments at both supply and demand sides.

Earlier this month, three major futures exchanges in China announced provisional regulatory measures on commodity futures trading, including raising transaction margins, commissions, and trading limits.

Following these punch combos, commodity prices have seen a notable decline from mid-May. Rebar, among the fastest risers in the price surge, saw its prices fall by 19 percent between May 13 and 24, while prices of steam coal dropped by 23 percent in the period.

Looking ahead, market analysts are confident that the commodity market will become stable thanks to the country's persistent efforts in cooling commodity prices.

Hoarding has become a regular occurrence amid soaring commodity prices, resulting in faster destocking processes in the market, a research institute with TF Futures said.

The strengthened market regulation will bring such "shadow inventories" to light and thereby help eliminate the demand-side market froth caused by hoarding, the institute said.

The regulatory measures will likely be further stepped up, said Huatai Futures, envisioning that more moves to increase supply and intensify market regulation are on the way.