China’s Vow to Rein in Giant Steel Industry Roils Iron Ore Again

A volatile month for iron ore and steel rolled on as China stepped up its rhetoric around curbing output and pollution in one of its dirtiest industries.

China’s Ministry of Industry and Information Technology will seek to establish a mechanism to contain steel output based on carbon emissions, pollutant discharges and energy consumption, the Shanghai Securities News reported, citing ministry official Lyu Guixin. Iron ore climbed more than 6% in Singapore, while steel futures in Shanghai jumped.

Iron ore has whipsawed this month as surging steel demand and tight raw material supply sent prices to a record two weeks ago. They’ve since plunged, entering a bear market this week, as China sought to cool a furious commodities rally that’s stoking concerns about inflation. Volatility for Singapore futures spiked to the highest in more than four years.

“The new policies will focus on cutting output instead of capacity, which will be more likely to see output cuts happening eventually,” said Lu Li, an analyst with Shenhua Futures Co. There’s still a question on when the policies will be implemented, which may not be in the short term given the rapid surge in prices already, Lu said.

Iron ore on the Singapore Exchange jumped as much as 6.7% to $183.90 a ton and was at $183.25 by 2:31 p.m. local time. Prices dropped 5.7% on Wednesday, taking losses from the record reached earlier this month to more than 20%. Futures in Dalian surged 5.9%, while rebar and hot-rolled coil in Shanghai rose more than 3%.

The world’s top steel consumer and producer has frequently reiterated its commitment to curb record output since late last year, rolling out a series of production restrictions to reduce emissions and targeting speculators and hoarders. Still, the country’s mills are churning out unprecedented volumes of steel as robust profit margins enable them to accommodate higher input costs.