(Economic Observation) Why has China's imported iron ore price hit a new six-year high iron ore "gold mine"?
China News Agency, Beijing, November 8th (Reporter Pang Wuji) Since the beginning of this year, despite the general decline in commodity prices, iron ore prices have bucked the trend and went out of a surge.
In mid-September, the price of China's imported iron ore (62% grade) rose sharply to the highest point of US$128.9 per ton, a six-year high.
Recently, the price of iron ore is still fluctuating between US$110 and US$120 per ton.
"Some people lament that iron ore is about to become a'gold mine'", Wang Yingsheng, deputy secretary-general of the China Iron and Steel Industry Association, said at the 2020 (9th) China Iron and Steel Raw Materials Market High-end Forum held on the 7th, the price of gold is still going up and down this year. Fluctuations, but the price of iron ore basically maintained an upward trend.
According to estimates, the price of China's imported iron ore has risen by nearly 40% from around US$82 per ton in February, while the cost of imported iron ore is only US$40 per ton.
Driven by the increase in sales and prices, the global iron ore giant Vale's profit in the third quarter rose sharply to 6.224 billion U.S. dollars, the highest value since the fourth quarter of 2013.
What makes iron ore a "crazy stone"?
Experts believe that strong demand from China is the most important reason.
China's economy, which was the first to recover from the impact of the epidemic, has greatly increased the demand for steel products, which has pushed up the demand for iron ore, which is a raw material for steel.
Li Xinchuang, Secretary of the Party Committee and Chief Engineer of the Metallurgical Industry Planning and Research Institute pointed out at the same forum that from January to September, China’s pig iron, crude steel, and steel output increased by 3.8%, 4.5%, and 5.6%, respectively. Steel output will exceed 1 billion tons, accounting for about 60% of global crude steel output.
Taking pig iron as an example, Wang Yingsheng also said that China’s pig iron output has set new highs this year.
In the past, China's pig iron production accounted for nearly 60% of the world's total, but it is now close to 70%.
Although steel production has maintained positive growth, it still cannot meet demand.
Data show that China has once again become a net importer of steel after 11 years.
From June to September this year, China saw net imports of crude steel equivalent to a single month for four consecutive months.
Wang Yingsheng pointed out that the demand from China has actually made an important contribution to the global steel industry and has become an important support for many steel plants to cease production and close down. Since the beginning of this year, a large number of pig iron, hot-pressed iron nuggets and other steel products produced by various countries have been imported into China.
On the one hand, domestic steel demand is strong; on the other hand, raw materials such as iron ore are highly dependent on foreign sources and rely heavily on imports.
Li Xinchuang pointed out that the domestic iron ore, nickel ore and other resources are poorly endowed, with limited production capacity and output, and high dependence on foreign sources.
Among them, the dependence of iron ore on foreign sources exceeds 80%, and the source of imports is highly concentrated.
China's iron ore mainly comes from Australia and Brazil, and imports from the two countries account for over 80%.
At the same time, Wang Yingsheng explained that the long-term negotiated price mechanism for iron ore has left downstream steel companies lacking bargaining power.
80% to 90% of the iron ore of the mine is sold through long-term agreements with large iron and steel companies. This part of iron ore is not priced.
The price of the long-term association is mainly determined by the remaining spot sales price of about 10%, and the cumulative amount of the current month is used as the basis for long-term agreement settlement.
Therefore, the supply of iron ore, what variety to sell, and at what price are mainly determined by the mine.
In addition, almost all steel products can be traded in the futures market, so speculation in the financial market will also contribute to the price of iron ore.
Iron ore prices remain high, greatly squeezing the profit margins of the steel industry.
According to statistics from the China Iron and Steel Association, the total profit of key steel enterprises from January to September fell by 9.46% year-on-year; the average sales profit rate was 4.05%, a year-on-year decrease of 0.66 percentage points. The overall profitability of the steel industry dropped significantly from the same period last year.
Experts believe that China's steel consumption will remain high in the next five years, and the demand for raw materials will also remain high.
How to ensure the safety of the development of the steel industry?
Li Xinchuang suggested that we should adhere to the full and efficient use of domestic and foreign resources, and strive to form a domestic and international dual-cycle raw material high-level guarantee pattern.
Improve the price mechanism and raw material financial system to reduce the impact of cost fluctuations in the steel industry.
Increase scientific and technological innovation, reduce the demand for traditional raw materials, and increase the diversified supply of alternative resources.
At the same time, consider establishing a strategic resource reserve system.
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