China’s iron ore giant says speculation is overheating prices

Iron ore risks becoming detached from physical market reality, as financial speculation drives strong prices more so than underlying supply and demand, according to state-backed trader China Mineral Resources Group Co.

The current resurgence of “false heat” in iron ore prices is the result of speculative trading activity, CMRG warned in a commentary by its research unit published on the WeChat account of the China Iron and Steel Association.

The association said spot prices rose more than 5% in more than three weeks between Nov. 7 and Dec. 2 to about $107.80 a ton. The gains come even as port inventories climb, steel demand softens, and average hot metal output retreats. Prices have since fallen and futures have traded in a relatively narrow range above $100 for the past four months.

CMRG has been vocal about what it views as unfair price-setting practices in the industry, which it says inflate costs for China’s steel mills. The giant trader has flexed its muscle this year by banning some of BHP Group’s iron ore as a negotiation tactic to get better contract terms.

Some traders are operating across both futures and physical markets in ways that can create localized tightness and influence market sentiment, CMRG said in the commentary published late on Tuesday.

The most active Singapore Exchange iron ore contract rose 1.1% to $102.95 a ton at 12:15 p.m. local time, while yuan-priced futures on the Dalian exchange rose 1.5%. Shanghai steel contracts also advanced.

(By Katharine Gemmell)