[ferro-alloys.com]The Dalian Commodity Exchange has imposed a limit of 30,000 lots per day on trading iron ore futures contracts with effect from June 16, the exchange announced in a notice June 15.

The move was interpreted by the market as being an attempt to curb speculation, amid high iron ore prices.

Iron ore prices have been rising sharply in recent weeks, gaining 25% since the start of May, with the industry benchmark S&P Global Platts IODEX assessed at $105.45/mt on June 16.

Market sources attributed the sharp rise in iron ore prices mainly to concerns of supply uncertainties stoked by coronavirus-related mine closures, combined with soaring steel output in China, which hit an all-time high in May at 92 million mt, up 4.2% on the year, data from the China Iron and Steel Association, or CISA, showed.

The Chinese domestic steel market, which is highly reliant on imports of the steelmaking ingredient, is sensitive to its supply disruptions and price rises.

The DCE note specifically states that the combined trading volume of opening long and short positions on all iron ore futures contract tenors by a single company should not exceed 30,000 lots, representing 3 million mt of iron ore per day.

The daily limit exempts hedging trading volume and market-making trading volume of opening positions, and took effect during the June 15 night trading session.

The measure was put in place "to ensure stable operation and growth of the iron ore futures market," DCE said in a separate statement posted on its website.

"The regulation is [meant] to curb the recent hyped market sentiment by limiting trading volume for certain speculators. Market prices need to be driven by fundamentals," said an analyst at a major Chinese futures company.

Traded volume and value of the exchange's iron ore futures contracted sharply on June 16, both losing about 26% on the day to 130 million mt and Yuan 100 billion, respectively, according to information on DCE's website.

The most actively traded iron ore contract for September 2020 delivery closed at Yuan 781/mt on June 16, up 2.4% day on day.

But in terms of its impact on daily trading for individuals and companies, an international trader said the limit was "unlikely to affect normal trading activities, as 30,000 lots per day is a large enough volume [for usual trading needs]."

Volatility in iron ore prices

This is not the first time that DCE has issued a notice during a price rally, seemingly aimed at keeping a lid on excessive speculation.

On June 2, DCE had issued a notice to address "increasing uncertainties and rising price volatility in the iron ore market" and advised its members to "strengthen investor education, enhance market risk management, and remind clients to trade rationally and in compliance [with regulations]."

This had followed a 3% surge in daily settlement prices on May 29 for the DCE's September iron ore futures contract, amid market speculation about a stoppage at Brazilian mining giant Vale's Itabira mining complex due to a number of COVID-19 cases. The stoppage was confirmed by Vale on June 5.

Similarly, when prices rallied in the second and third quarters of 2019 and breached the $100/mt mark, DCE raised its iron ore trading fee by 0.004% to 0.015%, which sources said was aimed at cooling off speculative interest.

Highlighting the level of concern among China's steelmakers about the fast developing virus outbreak situation in Brazil, Chinese steelmaker lobby group CISA held a meeting on June 2 with Vale to seek clarity on the impact on its production and operations.

Vale on June 6 confirmed that its annual production guidance would remain unchanged at 310 million-330 million mt for 2020.

With the extended monsoon season in Brazil already hurting shipments in the first quarter of 2020, iron ore fines inventory at the main Chinese ports have dropped to multi-year lows of around 107 million mt, market participants said.

There are also concerns over potential supply disruptions at the remaining mining complexes in Brazil, including Vale's flagship Carajas mine, amid escalating numbers of COVID-19 cases in the country.

While a slowdown in steel consumption due to the rainy season in southern China and the reintroduction of strict lockdowns in Beijing amid a new coronavirus outbreak may bring near-term pressure to iron ore demand, future market direction could depend on how long the supply tightness will persist.

(S&P Global Platts)

• [Editor:王可]