Metals Rally Falters With China Cracking Down on Steel Sector

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

Iron ore futures plunged as much as 11% in Singapore and steel rebar slid as Chinese officials rolled out fresh measures for steelmakers to take the steam out of markets. Base metals have also come under pressure in recent days, with copper down about 5% from a record high set on Monday.

The measures targeting China’s steel sector come after surging raw-material costs sparked the biggest jump in Chinese factory-gate prices in more than three years in April. A sharp jump in U.S. consumer prices has also sparked worries across financial markets that rising inflation will hamper a global recovery and force the Federal Reserve to tighten policy sooner than thought.

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, though short-term headwinds from inflation risks are building.

“Copper will still trade at a very good price, but I do think it will come under pressure,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said by phone from London. “There are some headwinds coming.”

Copper fell 1.1% to $10,224.50 a ton by 11:37 a.m. on the London Metal Exchange, after peaking at $10,747.50 on Monday. Other base metals fared better on Friday, though aluminum still headed for a 3.2% weekly drop, the most in a year.

In ferrous markets, iron ore pared some of its earlier losses to trade down 3.8% in Singapore, while futures in Dalian dropped the daily limit. Iron ore had surged to record highs recently amid the broad commodities boom.