China has declared war on booming commodity prices by threatening to crack down on domestic traders and firms involved in speculation, collusion or hoarding in a "zero tolerance" campaign.

China's state planner, the National Development and Reform Commission (NDRC), announced the blitz on Monday after five government departments summoned key players from the iron ore, steel, copper and aluminium sectors for interviews on Sunday. The move triggered a sell-off in iron ore futures and Australian miners.

While analysts said the move would not change the underlying dynamics driving record demand for iron ore, it is the latest sign that Beijing is serious about bringing down commodity prices. 

Traders said they had long anticipated a crackdown by the Chinese authorities on price speculation. However, while it would hurt futures trading it would not undermine robust demand for iron ore, which was being driven by tight supply.

The NDRC said the Sunday meetings made it clear regulators would strengthen the joint supervision of commodity futures and the spot market, where there would be "zero tolerance" for illegal activities. It would also increase inspections and investigations of abnormal transactions. "[Regulators would] resolutely investigate and punish violations of the law, such as reaching agreements to implement monopolies, spreading false information, driving up prices, and hoarding," the NDRC warned in a statement.

Analysts said the tone of the warnings signalled regulators were serious about cracking down on price speculation. Given the huge size of China's spot market, there would still be a negative impact for Australian miners.

China, the world's largest consumer of metals, has enjoyed a more rapid post-pandemic recovery than other major economies, but is being squeezed by record demand for commodities due to stimulus spending by governments around the world.

"This is clearly a warning to speculators. "For iron ore, this might have some effect. China is the world's principal buyer, and its spot market arguably is the world's spot market, so those traders could potentially change their behaviour based on this notice."

Analysts noted the language used by the NDRC, which urged the industry to "strengthen self-discipline" to maintain market order. 

Source: Australian Financial Review May 24, 2021

 

Market Integrity and Market Manipulation

Explain and discuss the ethical concerns of price manipulation and the role of regulation.

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Price manipulation refers to any attempt by individuals or organizations to influence the price of a commodity security or financial instrument in a m... View the full answer