An iron ore mining site in Australia Photo: cnsphotos

China's top economic planner and market regulator on Monday launched a joint probe into the trading volume and prices of iron ore, as part of an effort to stabilize bulk commodity prices in the domestic market.

Following news of the investigation, the iron ore futures closed 7.2 percent lower on Monday on the Dalian Commodity Exchange. The main contract settlement price of iron ore had risen 29.5 percent since the second quarter as of Sunday.

Iron ore prices have surged this year, adding pressure on the production and operation of middle and downstream enterprises, the National Development and Reform Commission (NDRC), the top planner, said in a statement. 

China supports the sound development of the iron ore spot trading platform in line with the law. At the same time, the country will keep a close watch on the spot market price, promptly identifying abnormal transactions and speculation, said the NDRC, together with the State Administration for Market Regulation.

In order to maintain market order, behaviors such as signing exclusive agreements, spreading price increase information, bidding up prices and hoarding will be severely punished in accordance with the law, read the statement.

"The continued rise in iron ore prices is mainly caused by structural contradictions. Since March this year, Tangshan in North China's Hebei Province has been very strict on production limits of steel. At the start of the year, regulators told the industry to cut crude steel output, which has resulted in a significant rise in profit," an analyst surnamed Yuan at B2B trade platform Ferroalloynet.com, told the Global Times on Monday. 

Now there's pressure in terms of the high price of iron ore - the raw material, according to Yuan. 

Analysts said that the pandemic is one of the main reasons for higher costs. The global price of iron ore stood at $207.72 per ton in May, up 121.8 percent year-on-year, World Bank data showed.

Going forward, though production of iron ore may recovery, supply will still be tight due to huge demands, analysts said.

"The global economic recovery has boosted the production of iron ore… but the global increment of iron ore supply will be 100-105 million tons, which means China can import a small amount of raw materials from the global market, resulting in tight supply," said Bai Jing, an analyst on iron ore at the Galaxy Futures Co.

On Thursday, Meng Wei, spokesman for the NDRC, said during a press conference that the next step is to closely monitor the market and price changes, increase revenue through multiple channels, reduce expenditure to maintain a dynamic balance between supply and demand, and strengthen supervision of the derivatives market to maintain order.

Global Times