Iron ore negotiations will start and must push the monthly pricing

Although the amount of iron ore imported from China has been declining last year, the price of imported iron ore has risen 61% against the trend.

Chinese steel companies have fallen into a low-profit situation, but iron ore prices are still rising. The China Iron and Steel Association is negotiating with the three major iron ore giants with "China's demand, capacity scale, and industry meager profit". One of the three major miners has told the newspaper that the profits of Chinese steel companies should be changed through their own operations. Instead of lowering the price of iron ore, the company's negotiations are more concerned with the overall trend of China's economy, not the operating dilemma of China's individual steel companies.

For the iron ore trend in 2011, BHP Billiton CEO Gao Ruisi said that the urbanization and industrialization of emerging economies are still in the early stages, which provides long-term structural support for mineral products. In the eyes of foreign iron ore giants, China is showing its vitality: in the first year of the “Twelfth Five-Year Plan”, China’s high-speed rail construction, automobile production and sales have leapt to the top in the world, and 10 million sets of affordable housing will be Pulling demand for steel ( 4985 , -61.00 , -1.21 % ) and iron ore. In this context, the monthly pricing of iron ore will follow.

Monthly pricing

In February, BHP Billiton issued a new iron ore offer to Chinese steel mills at $168/ton, up 8% from last month, plus Shanghai freight, and the iron ore CIF price was about $175/ton.

At the same time, BHP Billiton changed its quarterly pricing model and imposed monthly pricing on Chinese steel mills. This makes domestic steel companies very difficult to accept, but there seems to be no better way. It can be seen that since last year's main quarterly pricing, BHP Billiton is implementing its plans in the Chinese market step by step.

Rio Tinto and Vale are temporarily waiting to see, still using quarterly pricing, and the new round of quotation is March this year.

At the same time, Indian powder ore offers rose to $190/ton due to factors such as the suspension of mining in 23 mining areas. India is restricting the export of iron ore to ensure the domestic supply, India plans to impose export tariffs on iron ore exports; at the same time, the Ministry of Railways of India announced that it will increase the cost of iron ore transportation, that is, the existing freight basis Pay 500 rupees per ton of iron ore. This means that the fees paid by Indian iron ore exporters will be greatly increased and will ultimately be reflected in the price of the products.

The upstream control is weak, and domestic steel mills only have to increase the pressure on steel prices to pass on. On February 14, WISCO took the lead in introducing the price policy for steel products in March, which rose by 200-400 yuan per ton. Subsequently, Baosteel also raised the price of steel again, which increased by 200-300 yuan per ton.

Since last year's three major mines forced the annual iron ore negotiations to be changed to quarterly pricing and index pricing, financial institutions have also actively participated in the promotion of iron ore financialization, hoping to split it.

Under the strong attack, Chinese steel enterprises have gradually lost control, and there is no way to attract financial derivatives such as iron ore index, shipping period, swaps, and futures.

Early in the country, people have issued an early warning. Once the price of iron ore goes to quarterly pricing, it will develop in the direction of spot and indexation in the future and gradually become financial. In fact, at the end of January, India had first introduced iron ore futures products.

“China’s lack of control over raw material production is not a problem for companies like BHP Billiton and Rio Tinto,” said James Wilson, an industry analyst at Royal Bank of Scotland.

In this regard, Luo Tiejun, deputy director of the raw materials department of the Ministry of Industry and Information Technology, warned in Shanghai that the Chinese steel industry is entering a track of low growth and low profit. At the beginning of this year, Minister of Commerce Chen Deming said that it is necessary to improve the iron ore joint negotiation mechanism.

Negotiation game

At the beginning of the new year, our reporter learned from the miners that although the China Iron and Steel Association is still actively engaged in iron ore negotiations, "but the company will continue to follow the existing plans to maximize the interests of shareholders." The miners said.

China Steel Association is still actively seeking negotiations with the three major miners, and China's demand and capacity scale have been repeatedly emphasized. As Chinese steel companies have accepted the requirements of miners, the China Steel Association hopes to restore the negotiations to the annual hopes.

When the Steel Association understands that it is unable to change the quarterly pricing, the monthly pricing will follow.

"In the past, the annual negotiations were weak. To today's appointment, the Chinese side is losing ground, the steel mills will not be unified, and the China Iron and Steel Association will also return to the sky." An industry insider commented.

In January of this year, China Steel Association went to Australia to negotiate with miners, and Baosteel, Wuhan Iron and Steel and other iron ore business representatives. It is envisaged that negotiations should make good progress. For example, in 2010, China's imports of iron ore decreased significantly, the port iron ore stocks were high, and the global iron ore supply exceeds demand is intensifying, and the profits of Chinese steel companies have declined.

The results are still not satisfactory. The miners said to the newspaper: "The profits of China's steel industry should be completed through changes in its own operations, rather than letting us reduce the price of iron ore. In other words, the operating difficulties of Chinese individual steel companies, the industry's low profit status, is not our pricing. The basis for this is more reference to China's economic trends and GDP growth data."

He said that he believes that China's economy will continue to improve. As long as the city still needs to be built and the total GDP data still needs to grow, China's steel companies will not decline overall. There will always be a rise and fall of enterprises, and the market demand for steel and iron ore will be Must be met.

The situation described by the person is actually seen from the price trend of iron ore last year. In 2010, China imported 618.6 million tons of iron ore, down 1.4% from the previous year, but the price of imported iron ore rose 61%, from an average of 90 US dollars / ton at the beginning of the year to 145 US dollars / ton at the end of the year, compared to the previous one. An annual increase of $40 per ton.

China’s imports have fallen, and iron ore has continued to rise in price, which undoubtedly makes the three major mines add points to shareholders.

At this time, the three major mines still showed the attitude of "considering China", that is, they are working hard to ensure the market and will not stop supplying to China. "The increase in iron ore mass production will not continue to be high." The two extensions and Vale have repeatedly indicated to the Chinese side that they will meet China's demand and hope that China understands the high risk of mines, huge capital investment and long operating cycle.

Overpaid 196 billion yuan

On February 16, the Ministry of Industry and Information Technology reported that in 2010, the import cost of Chinese steel enterprises increased by 196 billion yuan. Domestic steel companies are mostly in a state of low profit or loss. The profit margin of sales of key large and medium-sized steel enterprises is 2.91%, far lower than the average of 6.2% of national industrial enterprises.

Two days before the report of the Ministry of Industry and Information Technology, Rio Tinto released a performance report showing that in 2010, Rio Tinto's full-year net profit surged to a record $14.3 billion, of which the net profit of Rio Tinto's iron ore business was as high as $10.189 billion.

The net profit of Rio Tinto alone exceeded the total profit of 77 large and medium-sized steel enterprises in China in the same year.

It can be seen that Rio Tinto has gradually emerged from the shadow of the financial crisis and enjoyed the rich returns from the Chinese market. As the world's largest iron ore buyer, the Chinese market accounts for 64% of the total exports of the two companies.

"According to the index pricing method, how the index is collected, the Chinese has no say at all." In an interview with this newspaper, an industry insider was outspoken. Although we have been dissatisfied with the pricing methods of miners, in fact, there is no better. Method replaced. "In these years, the outside world has been too harsh on the main Baosteel. As a company, it does not need to bear too much government responsibility."

“The profit of the steel industry has been transferred to the upstream. It is a fact that China needs to adjust its own economic structure to change this situation,” said UBS analyst Tang Yibo.

At present, the steel industry will continue to promote joint restructuring, requiring the top 10 steel companies in China to account for more than 60% of the country's production capacity, in the hope of achieving high concentration. The miners focused on the beginning of the "Twelfth Five-Year Plan". China's high-speed rail construction, automobile production and sales have leapt to the top in the world, and 10 million sets of affordable housing will drive demand for steel and iron ore.

On February 16, BHP Billiton announced that it will invest a total of 80 billion US dollars in the next five years to expand its business rather than pursue the target of mergers and acquisitions.  

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