What Can China Do to Control Record Commodity Prices?

The surging cost of commodities to industries and households is a threat to China’s economic growth and the purchasing power of its citizenry.

As prices soar for everything from the copper and steel used in construction, to the coal that heats homes and powers factories, to the corn that feeds animals, what can Beijing do to control the record-breaking rally?

The answer is complicated by several factors, including policies on pollution and imports that have only served to exacerbate supply constraints. Beijing has imposed output curbs on metals like steel and aluminum to reduce emissions as part of President Xi Jinping’s commitment to deliver a carbon neutral economy by 2060. And it has cut purchases of coal and other commodities like copper from major supplier Australia as relations between the two nations have soured.

Moreover, the world’s biggest consumer of commodities is being forced to compete for materials just as global economies bounce back from the pandemic, driven by massive government stimulus, particularly in the U.S.

That can only dilute China’s efforts to rein in markets. Still, short of imposing price controls, Beijing has options that range from precise strikes on individual commodities to blunter tools that would affect the whole economy.

Trading Restrictions

China’s busy commodities bourses are a usual suspect for Beijing whenever the government feels price moves are getting a bit too wild. True to form, Monday’s dramatic jump in iron ore triggered a stern response. The Dalian Commodity Exchange vowed to “severely punish” unspecified violations in iron ore trading as it raised margin requirements and narrowed daily trading bands. The Shanghai Futures Exchange also pledged to tighten trading on steel, while the Zhengzhou bourse made a similar move on thermal coal.