China’s benchmark iron ore futures surged 10% to a record high, while steel prices rose 6% to hit a trading limit, as Beijing’s move to limit capacity fuelled worries about a supply shortage and prompted speculative buying.
China announced a series of measures on Friday to tighten controls on steel capacity, in an effort to curb pollution in key areas as well as reduce “blind investments and disorderly constructions”.
The most active iron ore futures contract on the Dalian Commodity Exchange, for September delivery, soared to an all-time high of 1,326 yuan ($206.20) per tonne.
“The surge of iron ore and steel prices were mostly boosted by speculative trading,” Tianfeng Futures analyst Wu Shiping said.
While some steel mills have stopped buying materials at such high prices, traders are sweeping goods at spot market, Wu added.
Spot prices of iron ore with 62% iron content for delivery to China stood at $212 per tonne on Friday, data compiled by SteelHome consultancy showed. SH-CCN-IRNOR62
On the Singapore Exchange, the June contract of iron ore leaped 10.3% to $226.25 a tonne.
“At present, market participants are trading iron ore derivatives like cryptocurrency ... not based on fundamentals, just pure momentum,” Navigate Commodities Managing Director Atilla Widnell said.
Other steelmaking ingredients on the Dalian bourse also increased, with coking coal up 7% at 2,043 yuan a tonne as of 0251 GMT and coke rising 5.5% to 2,987 yuan.
Steel prices on the Shanghai Futures Exchange jumped, mirroring gains in the spot market.
Both, construction rebar and hot rolled coils hit the upper limit at 6,012 yuan and 6,335 yuan, respectively.
Shanghai stainless steel futures, for June delivery, gained 3.3% to 15,390 yuan per tonne.