Under the Chinese government's swift, resolute and concerted efforts to put down a sudden spike in steel prices, a bubble that began to suddenly inflate in early May started to deflate in recent days. While the bubble burst left many who rushed to the feast licking their wounds, industry insiders and analysts said it may take months for the steel market to return to normal.

China's steel prices have experienced a roller coaster ride since May 1. Prices for steel products rose by more than 1,600 yuan ($250) per ton in a span of two weeks, attracting the attention of the highest level of the Chinese government. The government's high-frequency responses reached a peak on Monday with Chinese Premier Li Keqiang stating that it should be avoided that commodity price hikes are passed down to consumers. Steel prices then plunged, retreating to pre-May 1 levels.

Global Times reporters visited North China's Tangshan, the world's largest steel-producing city that produced about 14 percent of China's raw steel in 2020, and steel product markets in Shanghai, to investigate the immediate aftermath of China's steel trade after the government moved to strike abnormally high prices down.

At Xiaobali, a market place in northern Tangshan where over 400 wholesalers of steel profile products gathered, around a dozen trucks were scattered on a parking lot on Tuesday.

Just a week earlier, steel prices reaching their peak in more than a decade, the market was crowded with all sorts of middlemen, futures traders and producers in what apparently was a speculation frenzy.

"The market, spacious as it is, was buzzing with businessmen trying to strike a deal and full of cargo trucks loading and unloading steel plates that 'even a motorbike would struggle to get in,'" local tradesmen said.

For many of the local businesses in Tangshan making and selling tin plated steel, profitability ranges from 20 yuan to 30 yuan per ton in normal times. But according to Jia Dongyue, manager of the Rongde Steel company, the soaring price of steel nearing 6,000 yuan has pushed up his profits to up to 1,000 yuan per ton.

Many wholesalers described the situation as "mad" and "rare in a decade" and they admit speculation was behind it.

Even at the height of the market in mid-May, when the price of steel reached a historic record of more than 6,000 yuan per ton, more than half of the trucks collecting steel from Xiaobali markets were middlemen and other steel producers, not downstream manufacturers, Jia said.

"But at the height of the price hike, some of the clients working in the infrastructure industry where the products are mostly used had to cancel their orders because it was beyond their budgets," Jia said.

Then there came the bust. After the runaway steel market caught the attention of China's top government departments, which warned not to "collude with each other" to gouge prices, steel prices have plunged since last week.

Businesspeople in Xiaobali said their profits were painfully cut after steel prices plunged. Some say that the cut was so deep that their profits so far this year have been completely wiped out in the past two weeks.

"I'm losing up to 1,300 yuan per ton now and if the price does not pick up soon I will lose more than 1.4 million by the time I sell all my current stock," Yang Jin, a manager of Xinjinfeng Steel Company in Tangshan, told the Global Times on Tuesday.

At a steel market in Shanghai, steel traders were in a hurry to dump their previous hoard at a heavy lost, only to find few buyers.

Zheng Weiwei, a steel trader from East China's Fujian Province, was seen shaving his dog in front of his booth in a steel trading market in Songjiang district, Shanghai on Tuesday.

"Business is really damp these days," he said. Zheng had just sold more than 100 tons of steels on Monday, and that deal cost him 120,000 yuan. Before the regulation he would make 500 yuan a ton and many of his business peers raked in millions. Now he loses 1,400 yuan a ton.

"On May 10, I bought 1,500 tons at the highest price and if I sell them at the current market price, I will lose 1.68 million yuan in two weeks. I could have bought two houses in my hometown with that money," he said.

Zheng said that his inventory is relatively small in the market, compared with some sharks whose inventory easily tops 40, 000 or 50,000 tons.

Although the price dropped, it is still difficult to sell the current stock, Zheng said.

"As soon as Chinese authorities asked the market to maintain price stability, everyone was competing for a quick sell, pushing the price even lower. The downstream construction sites are also waiting for the price to fall further before placing new orders."

The speculation at futures and spot trading platforms is only part of the reason behind the price hike, local business owners in Tangshan said. Inflation on the upper stream of steel production and the market anticipation of limited iron ore supply from Australia helped push up price.

"The market is becoming so capricious these days. Never have I seen such a precipitous rise and fall in less than a month," a Shanghai-based steel trader surnamed Tang told the Global Times on Tuesday, adding that many traders are still waiting to see how the market will react.

"For the time being, I will keep the inventory at a relatively low level," he said.

The global commodity price's recent hike is appalling. Measured by CRB, an index of commodity futures prices, the average price of commodities has risen 46 percent from the second quarter of 2020. To put that steep climb into perspective, it took the index seven years to climb 145 percent from 2001-08.

Since mid-May, the Chinese government has noticed the trend and a series of actions from warnings to interviews swiftly followed like "thunder", market observers said, as a top-down plan to stem the unusual spike of commodity inflation took shape.

Market regulators have been summoning heads of companies to warn them about price speculation. The State Council Executive Meeting flagged the issue of "excessive speculation," and a swath of government departments, from the powerful National Development and Reform Commission to industry associations of almost all kinds of metals have weighed in.

The NDRC said the government will closely monitor the prices of commodities and have zero tolerance to irregular trading or price gouging.

On May 24, in his field inspection to Ningbo, East China's Zhejiang Province, a manufacturing base as well as the world's largest port, Premier Li Keqiang told a gathering of heads of manufacturing companies that the government will "rake its brains" to ensure commodity supply and stabilize its price, and reasonably guide market expectations.

Li said efforts will be made to avoid the rise in commodity prices to be passed downstream to consumer-end prices and affect people's livelihood.

"So far the impact from the soaring raw material prices has been limited and controllable," a source with a leading domestic construction machinery enterprise told the Global Times on Wednesday, anonymously.

The company has taken physical contingency measures such as beefing up internal cost controls and bolstering raw material inventories, as well as financial hedges to cushion the price jump in raw materials.

"As a champion, we will definitely react proactively to national policies and instructions to maintain the healthy development of the industry," the person said.

The person, however, declined to comment on whether the company would absorb the rising costs or bear the burden to help alleviate the pressure for downstream clients in dealing with the high raw material costs.

Hong Shibin, deputy executive director of the marketing committee of the China Household Electrical Appliances Association, told the Global Times on Wednesday that the impact from soaring raw material prices would be felt very differently for companies of varying sizes as a bargaining game between dealers and manufacturers ensued.

Industry giants like Midea and Haier have already announced a price jump of as much as 15 percent and the increase has often been passed on to their dealers across the country to absorb the rising costs.

"Dealers can only bear it, or they may lose their business partnership with the giants," Hong said, noting that consumers won't take the hike as their purses forbid them from doing so.

But small and medium-sized production enterprises would have to bear the costs because they have much weaker bargaining power than the big companies.

"It is the manufacturer, or the dealer who pays, never the customers," Hong said.

But Hong said that as the government is now putting greater efforts on cracking down on the "insane" price surges on commodities, downstream industry participants should be able to breathe easier soon.

For economists, the swift crackdown on excessive speculative behavior by certain market participants bore a deeper meaning.

Wan Zhe, a professor at Beijing Normal University who was a former researcher at NDRC and a commodity expert, noted that "it appears that this round of surging commodity prices has peaked, but not due to the government's policy measures to curb runaway prices, rather because the hike has genuinely exhausted its inertia."

"The Chinese government discovered the issues [of potential inflation] just as it sprouted; sent an earlier warning in a timely fashion, and did a lot of work," Wan said, noting that for the moment things are getting back under control.

From now on, commodity prices will embark on a long, stabilizing period stretching months, Wan predicted.

"If there were no black swan incidents, the stabilization could reach a new equilibrium in the third and fourth quarter with the gradual receding of commodity prices," said Wan.

Analysts said commodity price hikes is the result of quantitative easing, subsidies and liquidity flooding by developed countries led by the US, an uneven global economic recovery from the pandemic, a disparity in supply and demand, and some global incidents that added uncertainty to commodity supply.

China, despite its status as the World's Factory and the foremost buyer of a long list of commodities from iron ore and crude, to copper and corn, does not have much power to dictate their prices.

The National Bureau of Statistics (NBS) said the recent spike in producer prices indexes, prices measured at factory gates, would inevitably affect the consumer price index at a press conference in mid-May.

Pushed up by a rise in global commodity prices, China's April PPI grew 6.8 percent year-on-year, the fastest in three and a half years.

However, the NBS said the condition to maintain stable consumer prices remains.

Analysts cautioned about the potential ris of the rapid inflation in commodity sectors to the Chinese economy, with some even warning that if the matter goes unchecked, the still nascent domestic recovery of the world's second-largest economy in the wake of the pandemic's onslaught could be at stake.

China's economic recovery seen from the consumption aspect is still lackluster, in both people's willingness and their ability to spend, Wan noted.

"Given that, an around-all price hike at the consumer end could potentially send the country into de facto stagflation - a situation when consumption is weak but prices for goods inflate," Wan said.

A marked inflation in China could saddle policymakers with the dilemma of having to choose between an interest rate hike as a response to inflation, and maintaining the due course of a relatively neutral monetary policy, according to Wan.

Wan said China's swift measures to rein in runaway steel prices highlighted China's responsible take of the matter and projected a positive influence on helping stabilize commodity prices.

However, some Chinese economists, including Cao Heping, an economist at Peking University, told the Global Times that a moderate price hike for commodities is a very good thing, indicating that the Chinese economy has fully recovered.

But Cao noted China has to take note of the monopoly of certain resources by a handful of countries, as in the case of Australia's monopoly of iron ore.

Wang Ji, a manager of Tangshan Xunzhuo Steel Trading Company, a company that exports steel products to Southeast Asia and Africa, told the Global Times on Wednesday that he believes steel prices will enter a stabilizing phase as the central government has made it clear that sharp rise and falls are not acceptable and "a stabilization could arrive in the third and fourth quarter."

"The first step," Wang said, "should be guaranteeing domestic manufacturers re-gain access to steel products at reasonable prices and not let them collapse under high costs and capital strain."

Wang predicted that there will be further adjustments in export rebates for steel products, or even export tariff levies to increase to cost of steel exports "so as to deny imported inflation."