The sharp rises in coal and iron prices have caught the attention of the market watchdogs. The pricing administrative and market supervisory departments have recently instructed agencies publishing iron ore information to carefully check and verify the accuracy of the information before it is released, saying that they will be severely punished if they are found fabricating or spreading false information on iron ore price rises.
Due to the market's expectations of the country using infrastructure investment to stabilize the economy, it is necessary for the administrations to conduct in-depth investigations, strengthen supervision and crack down on illegal activities such as spreading false information, price gouging and malicious speculation.
In the process of development, China adopts counter-cyclical macro-control measures－it boosts growth mainly by increasing infrastructure and real estate investment－which leads to surge in demand for bulk commodities. This naturally leads to speculation.
Since China mainly relies on imports for iron ore, it is more difficult to address such speculation on iron ore than on coal, an energy resource in which China is largely self-sufficient. And the supply of iron ore is dominated by Brazil's Vale, followed by Pilbara, BHP Billiton, Fortescue Metals Group and Rio Tinto, which established a pricing system that collects data from only 30 to 40 active steel mills, ore suppliers and major traders.
In other words, although the world's main iron ore market, China has long lacked pricing power in it. That's why speculative capital is more active in the iron ore market. This is a speculative activity jointly participated in by domestic and foreign capital. They use information to influence market sentiment and expectations, and force long positions in the futures market near the delivery month. It also creates false impressions in the bidding process of traders to create tension in the spot and futures markets to realize speculation and arbitrage.
The speculation drives an irrational cascade of price rises, and the speculative capital market manipulation takes the form of a guerrilla war style. So the authorities must strengthen the supervision of the whole chain, especially during the generation of cyclical demand, to crack down on speculation, maintaining the stability of the upstream commodity prices and protecting the downstream industries.
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