London (CNN Business)In recent weeks, investors have poured money into bets on raw materials like steel and iron ore, confident that limits to supply and massive post-pandemic demand would trigger one of the biggest price spikes in decades.
Now, thanks to action from China, the frenzy may be on hold.
What's happening: Five top Chinese regulators announced Monday that they had jointly summoned key companies in the iron ore, steel, copper and aluminum sectors over the weekend. During the meeting, the agencies vowed to step up regulation and closely monitor commodities markets, warning that there would be "zero tolerance" for speculation or market manipulation.
Commodities prices plummeted in China on Monday following the news. Iron ore futures fell 5.2%, while futures of rebar — a type of steel used to reinforce concrete — slumped 3.6%.
Atilla Widnell, managing director at Navigate Commodities in Singapore, told me that he views this as a healthy pullback, since many everyday investors had been getting ahead of themselves.
"I think we're getting closer to acceptable price ranges now," Widnell said. He noted that prices for steel and iron had "increased parabolically" but appeared detached from "underlying supply and demand fundamentals."
April data showed that Chinese demand was "starting to level off a bit," and that realistically, given the country's relatively early exit from harsh pandemic restrictions and stimulus rollout, "this year isn't going to be magnificently stronger than last year."
Still, enthusiasm for commodities among investors could rear its head again before long. US President Joe Biden wants to spend $1.7 trillion to renew the country's infrastructure. And Goldman Sachs thinks the case for higher oil prices "remains intact given the large vaccine-driven increase in demand in the face of inelastic supply."
The investment bank now expects Brent crude prices, the global benchmark, to reach $80 a barrel this summer, up from about $67 right now.
Remember: Brent crude prices started the year under $52 per barrel. So even as traders take a breather, the impact of significant price increases will remain a major topic of conversation.
A Deutsche Bank survey of 620 global market professionals released Monday found that 63% of respondents see higher-than-expected inflation as one of the top three risks to market stability. That's up from 43% in its April survey.