Iron ore giants drink monthly steel prices or usher in new challenges

Ore negotiations have tolerated any signs of trouble. Recently, a statement made by the senior executives of China Minmetals once again exposed the minds of miners. According to media reports, at the 2010 China Import Forum held on September 6, Minmetals' vice president Feng Guiquan revealed that the three major miners currently want to sign a pricing agreement with China, but the specific outcome depends on the results of negotiations with China Steel Association. . “The collapse of the iron ore long association system will make the market more complex. The three major miners hope to sign a monthly iron ore pricing agreement with China. However, we hope that we can adhere to the long association mechanism and we can persist as long as possible, so that it is convenient to arrange logistics and transport."

The author understands that with the change of the original iron ore pricing mechanism, this year, the three major miners have shifted from the previous long-term model to the quarterly pricing based on the spot index, but the “game” on how to develop at the later stage has never been stop. Last month, some media reported that BHP Billiton, one of the three largest iron ore suppliers in the world, has started to promote monthly pricing to China's steel mills. It seems that the appetites of the three major miners have not simply stayed on quarterly pricing.

Analysts believe that if the implementation of the monthly price of the three major mines succeeds and the iron ore pricing mechanism is closer to the development of spot prices, the fluctuation of raw material costs will be greatly aggravated, bringing new challenges to the cost control of steel enterprises' production and operation.

The latest monitoring of my steel network shows that due to the impact of domestic energy saving and emission reduction, the shutdown of factories in various regions will play a certain stimulus for ore prices. The import price of iron ore will be affected by the downturn in procurement. There is a downward adjustment. Affected by the decrease in iron ore demand in China, Brazil’s Vale and Rio Tinto recently lowered their expectations for fourth-quarter price of iron ore, which was 10% and 13.3%, respectively.

Analysts said that "because the new pricing mechanism may cause iron ore spot prices to fall below the index price more often than before," steelmakers will find it more difficult to profit from imported iron ore.

Luo Bingsheng, executive vice president of China Iron and Steel Association, said that the current supply and demand relationship of iron ore has changed, and the global iron ore supply and demand situation at the beginning of the year has been different. According to the data, China imported 360 million tons of iron ore from January to July this year, an increase of 5.25 million tons, an increase of 1.48%, and an increase of imports by 30.28 percentage points from the same period of last year. Since the second quarter, China imported four consecutive iron ores. On a monthly basis, iron ore imports fell by 2.94% year-on-year in April, down 2.92% in May, down by 14.72% in June and 11.71% in July. “The sharp increase in domestic iron ore is the main reason for the continuous decline in the total amount of imported iron ore. Domestic iron ore can support the development requirements of iron and steel companies and the dependence on imported ore continues to decline,” said the analyst.

Although the market generally expects iron ore prices to decline in the fourth quarter of this year, it is noteworthy that China's steel demand will further expand next year, coupled with the reduction in the export volume of Indian iron ore, iron ore prices are expected to be raised. “There will be some fluctuation in prices, especially considering that the confidence in the macroeconomic environment is changing, but we still believe that from the quarterly average, the prices in the next few quarters will continue to rise.” Morgan Stanley analyst Joel Crane said in an interview with the media.