Iron Ore Prices Plummet After Trading Frenzy Ends

Easy credit terms, meant to support China’s slowing economy, helped fuel the speculative trading.

“Low yields on government debt, rising corporate default rates, the experience of being burned in the stock market last year and the flood of credit pumped into the financial system as the policymakers try to reflate the economy have combined to generate a wave of speculative activity in commodity markets, particularly futures markets,” wrote The Australian on Tuesday.

Bloomberg reports that China exchanges increased fees, cut hours, and boosted margins in raw-material futures in attempt to stem the trading furor.

“The recent price spike was well above the levels supported by market fundamentals,” said Gerard Burg, senior Asia economist at National Australia Bank Ltd. in Melbourne. In a Bloomberg report Burg said, “Stocks have been steadily rising, given the rebound in imports. This highlights again that the market isn’t that strong, and the price spike was excessive.”