The most active steel rebar and hot rolled coils on the Shanghai Futures Exchange both closed down 6% on Friday, but have jumped 34% and 43%, respectively, so far this year.
The Shanghai market regulator issued a statement saying it and other authorities had jointly talked to mills about the runaway prices, urging them to "set prices reasonably" and help to stabilize the ferrous sector.
"Steel production and operating companies... must not fabricate or spread price increase information to disrupt market order," according to the statement.
It is said large increases in prices were forbidden unless that were "significant changes in production costs."
China's steel hub Tangshan, which produces more steel than the world's second biggest producer India, also published a statement after speaking to all the mills in the city.
Tangshan said it would strictly punish steel producers that are found manipulating market prices or hoarding stocks.
(Reporting by Min Zhang and Shivani Singh; Editing by Simon Cameron-Moore)
