In the final quarter of last year, the world’s miners breathed a sigh of relief as China seemed to break out of its economic slowdown and speed up its consumption of iron ore. Prices of the commodity had shriveled to almost a three year low last September (see chart below), then rallied back up. China is the world’s largest consumer of it.

But according to Morgan Stanley, while Chinese steel mills made a flurry of iron ore purchases late last year, this was a one-off event. The bank says they were simply “restocking” after holding back from purchases in the second quarter of last year, when China’s growth slowed to a three-year low.

And the investment bank’s justification for the short term iron ore recovery could be far too diplomatic. China’s top economic planning agency, the National Development and Reform Commission (NDRC), has just given global miners a tongue-lashing for what it claims was their manipulation of the iron-ore price to cause a false rally.

According to the NDRC, iron ore miners delayed shipments and pretended stocks of the raw material were lower than they were, in order to create a sense of shortage. That, in turn, may have prompted Chinese steel mills to stock up more than necessary, worrying the shortfall could get worse.

Anglo-Australian mining giant BHP Billiton raised eyebrows in January when it bought 100,000 tonnes (110,000 tons) of iron ore on the spot market. Traders who spoke to Reuters about BHP’s January purchase called it a “rare move” designed to “stem a decline in prices as Chinese demand thins.” BHP has consistently denied that motive, and said today in response to the NDRC criticism that it had simply been aiming to “improve liquidity” in the spot iron ore market.

China’s need for iron ore is driven by urbanization, property development, and the building of new railways and bridges. To prop up its flagging economy, the Beijing government has in recent months put its foot down hard on the economic stimulus pedal and has targeted (paywall) 1 trillion yuan ($160 billion) worth of spending on infrastructure for 2013.

However, that may not mean demand for the ore is going up. The China Iron and Steel Association (CISA) has said that even while demand for steel is improving, China has an oversupply of the metal. That may be due to steel mills restocking with more product than they needed during the recent rally. Still, Chinese iron ore buyers are not beyond pretending their demand is lower than it is. The CISA may also be trying to ensure prices do not get too high.

What is certain, however, is that after years of double-digit economic growth, China has accepted its economy is going to slow down. Whatever happens next between the nation’s iron ore buyers and global producers, prices of the material are unlikely to return to their February 2011 highs.

Source: Quartz