China’s most-traded iron ore futures tumbled as much as 8% on Wednesday to hit ~1,100 yuan/tonne. This comes as its state council vowed to curb the unreasonable rise in commodity prices. Consequently, the BHP Group Ltd (ASX: BHP) share price slumped 3.42% on Wednesday, while the Fortescue Metals Group Limited (ASX: FMG) share price shed a similar 3.14%.
The fall has continued today. At the time of writing, the BHP share price is trading 1.51% lower to $48.06. At the same time, Fortescue is down 0.22% to $22.78.
China to stabilise its commodity market
Steel, iron ore, and copper prices have surged in the last 12-months. This has been fueled by an increase in global liquidity, supply-side constraints, and post-lockdown recoveries. China has been a driving force behind the uplift in commodity prices, with commodity hungry investments in sectors such as technology, infrastructure, and transport.
According to a statement released after a State Council meeting, China will look to strengthen the management of both supply and demand-side factors to curb “unreasonable” increases in commodity prices and prevent the pass-through to consumers.
The meeting reported a focus on adjustments on trade and stockpiling, reinforced inspections on behaviours that bid up prices, and a crackdown on malicious trading.
The country also urged coal producers to lift production to meet peak demand in summer.
This caused China’s iron ore futures to tumble as much as 8%, with other materials including coking coal, thermal coal, hot-rolled coil, and steel rebar futures to slide between 5.5% and 6.8%.
Are the Fortescue and BHP share prices in trouble?
The Fortescue and BHP share prices are arguably iron ore price proxies. With iron ore surging to never before seen prices, iron ore miners have followed suit, soaring to all-time record highs alongside market-leading dividends.
China’s policies are still in their early days, with iron ore prices still sitting at record levels, above US$200/tonne.
To add some perspective, iron ore prices were fetching around US$160/tonne at the start of the year. In September 2020, they were fetching US$120/tonne and US$90/tonne before COVID-19 hit in March last year. Iron ore prices have truly come a long way.
Earlier in March, China took aim against its industrial hub, Tangshan, with new emission policies put in place to limit or halt production. This saw the BHP share price tip to $44 in late March. However, it wasn’t long before its shares regained losses to set a new all-time record high of $51.82 by 11 May.
Clearly, China’s announcements can have an immediate push-pull effect on Fortescue and BHP shares, or rather, market sentiment towards ASX iron ore miners. However, it may not necessarily have an effect on iron ore prices in the short to medium term.