The mad iron ore market has aroused great attention from relevant departments.

On December 6, the China Iron and Steel Association (hereinafter referred to as the China Iron and Steel Association) stated that the recent sharp increase in imported iron ore prices deviated from the fundamentals of supply and demand. There were artificial factors such as abnormal bidding by traders boosting the index rise, and the futures market was approaching the delivery month. Create market tensions and call on relevant regulatory authorities to intervene as soon as possible. Since then, Dalian Commodity Exchange (hereinafter referred to as DCE) issued an announcement on its official microblog, stating that it has recently launched a "five-in-one" regulatory coordination mechanism for iron ore and other varieties, and will strictly investigate and crack down on illegal transactions.

The iron ore market has risen sharply this year, with an increase of nearly 50% during the year. Recently, it has become more intense. An industry insider told the brokerage China reporter that the increase in steel mill output this year will drive demand for iron ore, coupled with supply speculation, ore prices are supported by fundamentals. However, the Platts index of overseas iron ore has recently experienced an abnormal surge, which may be manipulated; a large multinational trader in the spot market has mastered most of the rights to the lowest futures deliverables, thus driving up the prices of delivery products; There is also a tendency for the most active contract to short squeeze, and the seat change of a foreign futures company is particularly noticeable.

China Iron and Steel Association: The surge deviates from the fundamentals, and the regulatory authorities intervene as soon as possible

According to the official website of the China Iron and Steel Association, Luo Tiejun, vice chairman of the China Iron and Steel Association, said in an interview with reporters on the 6th that the recent price of imported iron ore has risen sharply beyond industry expectations, which has further increased industry operational risks and is not conducive to the supply of the industrial chain.

Luo Tiejun said that from the situation of the China Iron and Steel Association, the recent sharp increase in the price of imported iron ore deviated from the fundamentals of supply and demand. The abnormal bidding of traders has boosted the index rise, and the futures market is approaching the delivery month. Call on relevant regulatory authorities to intervene as soon as possible. He also pointed out that the implementation of the dynamic premium and discount system for iron ore futures brands that is close to market changes is imminent, which will help steel companies to better use futures tools to control risks.

DCE: Launching the "Five-in-One" Supervisory Cooperation Mechanism
After the China Iron and Steel Association shouted, DCE issued an announcement on its official microblog on the evening of December 6, stating that the “zero tolerance” requirement has been implemented. Supervision has joined forces to strictly investigate market transactions and crack down on illegal transactions.

The "five-in-one" regulatory coordination mechanism is unique to China's futures market. The "five" include China Securities Regulatory Commission, China Securities Regulatory Bureau, Futures Exchange, China Futures Market Monitoring Center, and China Futures Association. This regulatory system has played an important role in the development of China's futures market in the past.

It is worth noting that DCE has successively launched a number of regulatory measures for iron ore futures. On December 4, DCE issued a "Market Risk Warning Letter" for iron ore, stating that "the price of iron ore has been volatile recently. All member units are requested to strengthen investor education and risk prevention work, and remind customers to be rational and cooperative to participate in futures trading regulations. Our Exchange will continue to strengthen daily supervision, seriously investigate and deal with various violations, and maintain market order."

The day before, DCE announced the implementation of a trading limit for iron ore futures I2105 contracts. Starting from the trading hour on December 7, 2020 (that is, during the night trading session on December 4), non-futures company members or clients shall not open more than 10,000 lots in a single day on iron ore futures I2105 contracts. The single-day open position refers to the sum of the number of open positions for buying and selling on the iron ore futures contract on that day by non-futures company members or clients. The number of open positions for hedging transactions and market making transactions is not limited. Accounts with actual control relationships are managed as one account.

At the same time, in order to cool the market, DCE has also lowered the maximum price of the iron ore delivery warehouse outbound fee. Among them, the maximum price limit for vehicle outbound fees is reduced from 10-15 yuan/ton to 8 yuan/ton, the maximum limit price for train outbound fees is lowered from 20-23 yuan/ton to 8 yuan/ton, and the maximum limit for ship outbound fees is lowered from 25-44 yuan/ton to 12 yuan/ton (excluding port construction and port charges).

Iron ore prices are accelerating soaring

The iron ore market can be described as hot recently, and futures prices are continuing to rise.

On December 4, the Platts index of iron ore rose by US$7.5/ton in a single day, breaking through US$145/ton in one fell swoop, an increase of more than 50% from the beginning of the year, a record high in the past eight years.
In the futures market, iron ore futures are gaining momentum, and the latest risk control measures introduced by the Exchange have little impact in the short term. During Friday night trading hours, DCE iron ore futures continued to rise. The main I2101 contract rose to 993 yuan/ton during the session. This price hit a record high since iron ore futures went public in 2013, and the absolute price is approaching 1,000 yuan. The latest price of I2105 is 916 yuan/ton, an increase of 4.51% from the previous day’s settlement price. The increase in far-month contracts is even more alarming.

Insiders suspect that there are tricks behind

“There are many reasons for the price increase in the iron ore market. The main mine Vale’s output target for next year is low, and the supply and demand pattern is tight. However, overseas swap prices have skyrocketed recently, and import profits have been upside down by more than 100 yuan, and Platts is also bought by traders. The external market that was bought by a trader has a feeling of being charged, so I really need to check it." A relevant person in charge of an iron ore trader said.
Another industry insider revealed more information to reporters.

"From a fundamental point of view, this year's demand is mainly too good and the output of steel mills has increased, so the demand for ore has increased substantially. There are some trends in the futures market that are forced to press positions, but the current market prices are still discounted. It first raised the foreign Platts index, and the Platts index is a joint price of China and overseas. There is indeed the possibility of artificial manipulation. There is a problem here. The increase of the Platts index leads to losses in imported ore, so domestic traders appear the situation of grabbing goods." The industry insider said.

As for the futures market, he said that the large number of long positions in JPMorgan Chase’s futures seats is particularly interesting, but it can only be said that this may be related to the rapid rise. From the perspective of investment operations, it is difficult to say whether there are violations of regulations, and regulatory authorities are required further investigation.

In addition, there are rumors in the industry that the sharp increase in iron ore futures prices is related to a multinational trader. "This large multinational trader controls a large amount of iron ore's minimum delivery product standard spot, which objectively raises the price of the delivery product." Some institutional sources pointed out.