China must guard against risks of rising iron ore prices
In response to the novel coronavirus outbreak and to stimulate the economy, many countries have adopted monetary easing policies, which have resulted in increased liquidity, which is contributing to the rising prices of global commodities.
Iron ore prices began rising in the second quarter of last year and so far prices have increased by more than 100 percent. With the United States announcing an ambitious infrastructure investment plan, global commodities such as iron ore are expected to continue to experience a significant upswing.
China is the world's largest buyer and importer of iron ore. Its demand for iron ore accounts for more than half of the total global demand. For example, more than 80 percent of iron ore demand in China's smelting sector is met through imports. However, China does not enjoy pricing power corresponding to the scale of its demand.
China should guard against the rise in international iron ore prices, as it has the potential to erode its hard-won economic recovery.
As China's manufacturing industry is still in the process of transformation and upgrading, its bargaining power with the demand side in the international market is still not strong enough. The rapid rise of iron ore prices has brought negative effects to China, such as raising the costs of its steel production, transmitting increased costs to downstream industries and eroding the profits of the real economy. China's economic recovery has not come easily and it should take measures to try and curb the rapid rise in the price of iron ore and other raw materials.
It should strengthen information disclosure in the iron ore market to stabilize market expectations, and take measures to guide capital to the real economy. Measures should be taken to promote the integration of China's steel industry to increase its industrial concentration and raw material pricing power. Severe crackdowns should be imposed to curb speculation in iron ore by financial capital at home and abroad.
