Response Measures to Rising Raw Material Prices
Directive to Reduce Overseas Raw Material Market Risk Exposure of State-Owned Enterprises
[Asia Economy Reporter Kim Suhwan] Chinese authorities have recently taken measures to release government stockpiles of raw materials into the market and strengthen risk management of raw materials by state-owned enterprises in response to the sharp rise in raw material prices.
On the 16th, Bloomberg reported that the China Asset Supervision and Administration Commission instructed domestic state-owned enterprises to reduce their exposure to overseas raw material markets to cope with the rapidly changing raw material price risks. The media also reported that these state-owned enterprises were required to submit plans related to future raw material futures positions to the authorities.
In particular, an official from the authorities stated that the government decided to release various raw materials such as steel, aluminum, and zinc, which are temporarily held, into the market. Bloomberg added that these raw materials are expected to be sold to manufacturers who need them.
This move by the Chinese government is interpreted as a response to the recent growing inflationary pressures that have disrupted the government's plans to pursue an economic rebound after COVID-19.
Last month, prices of raw materials such as iron ore, copper, and coal surged to record highs due to a sharp increase in demand. As a result, China's manufacturing industry faced increased costs, leading to potential price hikes, which in turn raised concerns about consumer price increases negatively impacting the overall Chinese economy.
Previously, the Chinese government had ordered domestic companies, including steelmakers and raw material trading firms, to prepare for risks caused by volatile raw materials like iron ore.
Bloomberg analyzed that China's move to strengthen raw material price controls today shows an intention to influence the international raw material market as well to address domestic inflation.
Following the Chinese government's announcement today, global raw material prices slightly declined. As of 2:45 PM Korea time, iron ore on the Singapore Exchange (SGX) was trading at $205.80 per ton, down 2.5% from the previous trading day.
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