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Rally in metals flounders with China cracking down on its steel industry


Industrial materials from copper to iron ore are feeling the pain as China steps up efforts to cool a blistering rally in commodities that is fanning fears over a global surge in inflation.

Iron ore futures plunged as much as 11 percent in Singapore and steel rebar slid as Chinese officials introduced fresh measures for steelmakers to take the steam out of markets.

Base metals have also come under pressure in the past few days, with copper down 4.7 percent from a record high set on Monday.

Photo: AP

The measures targeting China’s steel sector come after surging raw-material costs last month sparked the biggest jump in Chinese factory-gate prices in more than three years.

A sharp jump in US consumer prices has also sparked worries across financial markets that rising inflation would hamper a global recovery and force the US Federal Reserve to tighten policy sooner than thought.

“Many fear that high inflation will force the Fed to take away the punch bowl,” which acted as one of the forces in propelling a rally in commodities from their nadir in March last year, TD Securities analysts led by Bart Melek said in a note. “Ongoing deleveraging in China should take some wind out of the sails for commodity demand.”

Copper and iron ore have been among the biggest gainers in a year-long rally in commodities as COVID-19 upended supply while stimulus measures supported economies and sparked a surge in demand, particularly in China.

An accelerating global decarbonization drive has also transformed the long-term outlook for metals like copper.

Copper on Friday fell 1 percent to settle at US$10,240.50 a ton on the London Metal Exchange, after peaking on Monday at US$10,747.50.

Other base metals fared better on Friday, though aluminum still had a 3 percent weekly drop.

In ferrous markets, iron ore fell 4.3 percent in Singapore on Friday, while futures in Dalian dropped the daily limit.

Iron ore had surged to record highs recently amid the broad commodities boom.

However, signs of easing short-term supplies and softening demand may be emerging in physical markets.

London Metal Exchange metal has flipped into contango, a market structure in which spot prices trade below those three months out.

Prices slumped as the Tangshan city government in China vowed to punish violations, including price manipulation, and steelmakers were told that they might be suspended from doing business or have their licenses revoked if they contravene the law.

Precious metals:

‧Gold for June delivery on Friday rose US$14.10 to US$1,838.10 an ounce, up 0.4 percent for the week.

Silver for July delivery rose US$0.31 to US$27.37 an ounce, down 0.4 percent weekly.

Additional reporting by AP

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