(Economic Observer) Why did China's imported iron ore price hit an 8-year high?
China News Service, Liuzhou, Guangxi, December 17 (Reporter Pang Wuji) As the end of the year approaches, iron ore prices have reappeared with a surge.
Secretary of the Party Committee and Chief Engineer of the Metallurgical Industry Planning and Research Institute, Li Xinchuang pointed out at the “Fourth Member Congress of the China Energy Conservation Association Metallurgical Industry Energy Conservation Professional Committee” on the 17th that China’s iron ore price index CIOPI (62% grade) has changed from the Spring Festival The last low of US$79.5 per ton rose to around US$155 per ton recently, an increase of more than 95%, setting a new 8-year high.
The price of iron ore futures exceeded RMB 1,000 per ton, which also hit a new high since its listing.
This is not the first time that iron ore prices have changed during the year.
In mid-September this year, the price of China's imported iron ore (62% grade) rose sharply to a high of US$128.9 per ton, setting a six-year high. In the following months, the price of iron ore was roughly 110- per ton. Fluctuates between 120 dollars.
Li Xinchuang revealed that one ton of iron ore, mined from Brazil or Australia, and then transported to China, costs only about US$30-40.
This means that if a foreign mine sells one ton of iron ore to a Chinese company, the gross profit is about US$120.
Excess profits have greatly improved the performance of mining giants.
Driven by the sharp rise in iron ore prices, Brazilian mining giant Vale’s profit in the third quarter rose sharply to US$6.224 billion, the highest value since the fourth quarter of 2013.
But the sharp rise in iron ore prices has put pressure on the already low-profit Chinese steel industry.
Why does iron ore price change?
According to expert analysis, there are three main reasons.
First, supply and demand are tight.
The strong demand from China is the basis for the increase in iron ore prices. The Chinese economy, which was the first to recover from the epidemic, has greatly increased the demand for steel products, and China's iron ore is more than 80% dependent on imports.
Li Xinchuang pointed out that from January to November, China's pig iron output increased by 4.2% year-on-year; crude steel output increased by 5.5% year-on-year, and the annual chemical steel output would reach 1.05 billion tons.
In regions other than China, steel demand has generally shrunk.
According to the forecast of the World Steel Association, world steel demand will shrink by 2.4% in 2020.
With one increase and one decrease, China's crude steel output is expected to account for 60% of the global total in 2020.
But at the same time, the global iron ore supply has not increased but decreased.
Li Xinchuang said that the iron ore output of Vale and FMG has not only not increased, but decreased, which has led to tight supply.
On December 2, Vale announced to lower its forecast for iron ore production in 2020, from 310 million tons to 3-305 million tons.
Hu Fugang, director of iron ore varieties at Lange Steel Network, believes that this output expectation is lower than the market's expectation for its increase in production, which triggered a surge in futures.
Second, the unreasonable pricing mechanism makes Chinese steel companies lack the right to speak in pricing.
Wang Yingsheng, deputy secretary-general of the China Iron and Steel Association, said that the long-term negotiated price mechanism adopted by iron ore makes downstream steel companies lack bargaining power.
The supply of iron ore, what variety to sell, and at what price are mainly determined by the mine.
Li Xinchuang said that the pricing of iron ore is actually based on a small sample to determine the big market price, which is very unreasonable.
The recent surge in iron ore prices is also due to the unreasonable pricing mechanism, which has led to increased speculation.
Third, financial hype has fueled the flames.
Wang Yingsheng said that almost all steel products can be traded in the futures market, so the speculation in the financial market will also contribute to the price of iron ore.
In response to iron ore prices, Dalian Commodity Exchange recently issued a risk warning letter to remind all parties to strengthen risk control.
Luo Tiejun, vice chairman of the China Iron and Steel Association, also said that from the situation of the China Iron and Steel Association, the recent sharp increase in the price of imported iron ore deviates from the fundamentals of supply and demand. The abnormal bidding of traders has boosted the index rise, and the futures market is approaching the delivery month. In order to create market tension, Cang and others called on relevant regulatory authorities to intervene as soon as possible.
How long can iron ore prices go up?
Experts believe that high iron ore prices are a short-term phenomenon.
In 2021, with the recovery of Vale's production, global iron ore production will increase compared to 2020, and iron ore prices will fluctuate in a long-term downward trend.
For iron and steel companies that are severely impacted in the short term, Li Xinchuang suggests that in the short term, iron and steel companies should moderately control the excessive growth of steel output in order to curb the blind demand for iron ore.
In the long run, from a strategic point of view, China should establish a diversified long-term stable and efficient iron ore security system.
In addition to iron ore, he said that scrap steel is also an important raw material for steel production, and he suggested increasing the collection and supply of scrap steel.
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