Iron ore price: here’s an aspect beyond China's control

Iron ore price movements in the past week have been impacted by inflation fears and the Chinese government’s efforts to control prices. In the coming week, the FOMC meeting minutes will further shape the commodity’s trajectory.

Chinese efforts to tame prices

Chinese demand has been the key driver of iron ore price throughout the week. However, the country’s unrelenting moves to curb the aggressive surge in prices has also been influential. On Monday, iron ore futures at China’s Dalian Commodity Exchange were trading at an all-time high after soaring by 10% to $206.20 per tonne. Construction rebar and hot rolled coils also surged by 6,012 and 6,335 yuan respectively.

As a response to the soaring raw material prices, the Chinese commodity exchanges raised the margin requirements and trading fees. The regulatory measures aimed at discouraging the speculators who were fuelling the rally.

While the rallying eased on Tuesday, iron ore price was back up on Wednesday. Subsequently, the Chinese Premier, Li Keqiang, held a meeting the State Council to find a practical solution. According to the leader, efficient coordination of the monetary policy with other policies was vital in dealing with the soaring commodity prices.

Although the State Council did not provide details of the proposed measures, the news had a significant impact on iron ore price movements. On Thursday, the benchmark iron ore futures for September delivery on the Dalian Commodity Exchange dropped by 7.5% to 1,217 yuan ($188.66) per tonne. Earlier in the session, the prices had dropped by 9.5% to 1,190 yuan. At the same time, steel rebar and hot rolled coils dropped by 2.6% and 1.9% respectively. In the ensuing sessions, investors will be keen on how the Chinese government’s interventions will play out for iron ore price.

Inflation concerns

The surge in iron ore price has been at the core of the ongoing inflation talks, an aspect beyond the control of the Chinese government. Soaring commodity prices are one of the aspects that have heightened investors’ fear on the possibility of the US economy overheating.

In the week ahead, investors will be keen on how the raw material’s price reacts to the FOMC meeting minutes scheduled for Wednesday. The Federal Reserve has maintained a dovish tone, indicating that the expected inflation is transitory. On Thursday, Fed officials, Christopher Waller and Thomas Barkin downplayed the possibility of inflation moving past the Fed’s target for a prolonged period.