Iron ore futures in China dropped 1.2% on Wednesday as market participants took a breather after the steelmaking raw material's sustained rally that had brought it to the highest level since the 2013 launch of the index. The pullback followed news about an increase in transaction fees for all iron ore futures contracts on the Dalian Commodity Exchange (DCE) and a rise in iron ore shipments to China from Australia's Port Hedland terminal.
On Tuesday, the DCE announced that transaction fees for all iron ore futures contracts will be raised to 0.01% from 0.006% of the trading value, starting July 18. The announcement came after the Dalian iron ore surged on the same day to a record-high 924.50 yuan ($134.36) a tonne. The benchmark price has more than doubled this year amid supply outages from top exporters Australia and Brazil, and robust demand in China - the world's top steel producer and consumer.
"That is probably intended to reduce trading activity so that prices would not be that volatile," said Richard Lu, senior analyst at metals consultancy CRU Group's Beijing office. The move is seen by some analysts as part of the market regulator's efforts to address steel producers' complaints about skyrocketing input cost that has eroded their margins.
"I think the government is going to try to break the fever and this may be the first salvo, especially since the supply squeeze should ease going into the second half of the year," said Edward Meir, independent commodity consultant at brokerage INTL FCStone in London. The most-active DCE iron ore contract closed down 1.2% at 899.5 yuan a tonne, while the rest of China's ferrous complex edged higher.
"You may see some correction today or maybe tomorrow, but generally speaking, the uptrend is intact, with demand still supporting the prices," a Shanghai-based trader said. China's government promised it will keep "order" on the iron ore market at a meeting last week with the country's steel producers, according to a source who attended the meeting.
"There is no doubt that frenzied speculation is driving prices higher," INTL FCStone's Meir said. "We see it in our business where some of the Chinese funds have left the base metals space and are trading iron ore instead." Iron ore shipments to China from Australia's Port Hedland terminal rose more than 11% in June from a month earlier, port data released on Wednesday showed.