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China promises iron ore 'market order' in meeting with steel mills

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A truck transferring imported iron ore at a port in China's eastern Shandong province. Upbeat demand prospects in the world's biggest producer and consumer of steel added fuel to the raw material's red-hot rally this year.

Beijing

CHINA'S government promised it will keep "order" in the iron ore market at a meeting last week with the country's steel producers who complained about record-high prices, according to a source who attended the meeting.

More than a dozen representatives from government departments, leading steel mills, including China Baowu Group, Ansteel Group and Jiangsu Shagang Group, domestic trading houses, industrial associations, consultancies and Dalian Commodity Exchange (DCE) gathered at the Ministry of Industry and Information Technology (MIIT) last Thursday, the source said.

"Government officials said they support industrial participants' assertion of their own rights and will resolutely sustain market order," said the attendee, who is a senior official at the China Iron and Steel Association. He declined to be named as he is not authorised to talk to the media.

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China's market regulators promised that they will tighten supervision of money flows in the benchmark iron ore futures market run by the DCE, according to the attendee.

They will also examine whether companies are using affiliated entities to place trades on the DCE in violation of the market rules. However, the current DCE trading rules will not be changed, he said.

China's iron ore futures on Tuesday hit their highest level since the index was launched in 2013, as upbeat demand prospects in the world's biggest producer and consumer of steel added fuel to the raw material's red-hot rally this year.

Iron ore futures on the DCE have doubled since the beginning of 2019. On Tuesday, the most actively traded contract, for September delivery, rose to a record 924.5 yuan (S$182.50) a tonne.

The spike follows production cutbacks at major miners in Brazil and Australia after a fatal dam accident and a cyclone in the state of Western Australia.

Monday's data showing China's industrial output growth hit a forecast-beating 6.3 per cent in June on an annual basis, supported by a recovery in investments, helped prop up overall market sentiment, analysts said.

Solid growth in investment in China's property and construction sectors in the first half of 2019, along with improving investment in infrastructure, should boost demand for steel commodities, said Helen Lau, metals and mining analyst at Argonaut Securities in Hong Kong.

Last Thursday's meeting followed the creation of a group, led by eight steel firms representing 30 per cent of China's steel output, that asked the government to investigate "non-market factors" causing the iron ore price rally. REUTERS