Global: Iron ore prices plummeted, China regains pricing power
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January 19 10:08:36, 2023
The world's largest steel market – China's steel mills have begun to cut production, causing iron ore prices to slip to a 15-month low. According to the latest market report, the price of iron ore fell sharply in October. At the end of the month, the price of 66% iron fines in Hebei was 1,200 yuan/ton, a sharp drop of 280 yuan/ton from the end of last month, a drop of 19%. The imported ore price was accelerating and plummeting. At the end of the month, the 63.5% Indian powder ore outer plate was quoted at US$129/ton, down by US$51/ton from the end of last month. Iron ore prices have been declining due to the European debt crisis and the weak steel market in China. Many industry insiders said that iron ore prices are expected to continue to fall, and iron ore supply and demand will also reverse. This not only brings benefits to the profitability of China's steel industry, but also provides an opportunity for China to compete with the three major mines for pricing rights in iron ore. The inflection point arrives? The reason for the weakening of iron ore prices, He Rongliang, an analyst at the China Merchants Productivity Promotion Center, believes that China’s economy is periodically adjusted, and the expansion of investment in the previous period has squeezed domestic resources. The imbalance in the market has led to downstream industries such as manufacturing. Demand fell. According to An Haixuan, a researcher in the metallurgical industry of CIC, the commodity market is not optimistic due to the global economic downturn. Domestic market policies continue to tighten, and downstream property controls have curbed demand for steel products, further affecting iron ore shipments. An Haixuan said that the first is that some steel enterprises mainly consume stocks, and the enthusiasm for purchasing mines is reduced. Secondly, some steel mills stop production and maintenance, which leads to lower industry demand, including the decline of steel prices and other factors that cause synergies, resulting in a decline in iron ore prices. . On October 31, Ma Guoqiang, general manager of Baoshan Iron & Steel Co., Ltd. said in the company's third-quarter performance briefing that from the current international environment and domestic policy orientation, the turning point of iron ore price has arrived. At the fourth information conference of the 2011 China Iron and Steel Association held on the same day, Zhang Changfu, vice president and secretary general of China Iron and Steel Association, also said that the price inflection point of imported iron ore has already appeared, or will bid farewell to the era of high-priced mines. According to data released by the General Administration of Customs of China, total iron ore imports from January to September this year increased by 11.1% to 508.1 million tons. China imported 60.57 million tons of iron ore in September, an increase of 2.5% from August. The import volume in August was 59.1 million tons. Despite this, the current price of imported ore is falling. Due to the reduced demand in China, Zhang Changfu praised the miners for taking the initiative to cut prices is a wise move. According to the latest data from China Steel Association, the average CIF price of imported iron ore in China in the first nine months of this year was US$165.74/ton, up by US$43.29/ton, or 35.35%. However, due to the recent European debt crisis and the weak domestic steel market, iron ore prices have been declining. Just in October, iron ore prices fell by as much as 30%. Expected to continue to fall due to the slowdown in domestic steel demand and the impact of high port inventory, industry insiders predict that iron ore prices will continue to fall in the future. Zhang Changfu, vice president and secretary general of China Steel Association, said that iron ore prices may continue to decline in the later period, and many domestic steel mills are now waiting to see prices move to suspend the purchase of ore. The latest short-term outlook forecast issued by the International Steel Association (WSA) shows that global steel consumption will increase by 6.5% and 5.4% respectively this year and next, far below the 2010 level. In the first three quarters of this year, global crude steel output increased by 8.2%, and China increased by 10.7%. Zhang Changfu pointed out that if the Chinese output is deducted, the crude steel output of other countries and regions in the world will only increase by 6.1%. Just in September, the price of iron ore exported by Brazil's Vale to China fell by nearly 30%, from the current price of 172.60 US dollars per ton to the current price of 120 US dollars per ton. Zhang Changfu said that in the first three quarters of the domestic market, national fixed asset investment increased by 24.9% year-on-year, down 0.1 percentage point from January to August; national real estate development investment increased by 32.0% year-on-year, down 1.2 percentage points from January to August. Affected by weakening demand and tightening policies, manufacturing growth has also slowed down, causing the overall demand for steel to fall. Taking cars as an example, the production and sales volume of automobiles in the first three quarters increased by 2.75% and 3.62% respectively, much lower than the same period in 2010. Ma Guoqiang, general manager of Baoshan Iron & Steel Co., Ltd. also said that the outlook for the domestic macro environment and steel market in the fourth quarter is not optimistic, but the reasonable adjustment of iron ore prices is conducive to the long-term healthy development of the steel industry and the mining industry. Ma Guoqiang said that the current price of iron ore is affected by multiple factors such as supply and demand, speculation in the capital market, and the structure of both supply and demand. From the perspective of global iron ore resource supply and global steel industry profitability, iron ore prices return to rationality. The requirements for the common development of the industrial chain. Zhang Changfu said: "The port has a backlog of nearly 100 million tons of ore. The ore that is pressed against the hands is sweating... China's demand is slowing down, steel mills are stopping the stove, can iron ore still want to sell high prices? ?? Port inventory reflects weak downstream demand, and the inventory backlog of Caojingdian, Rizhao and Qingdao ports alone exceeds 10 million tons. Data from the China Iron and Steel Association show that the current inventory of iron ore in the eight major ports is as high as about 98 million tons. These stocks are all purchased at high prices and are priced at more than $165 per ton. Anhai Xuan, a researcher in the metallurgical industry of China Investment Consulting Co., Ltd., also believes that although iron ore has not reached the level of fundamental changes in supply and demand, it will be affected by many factors in the short term, and prices will continue to decline for some time. Steel companies benefited from the previous period, due to the continued rise in resources and energy prices such as iron ore, coal and electricity, high costs are reducing the profits of Chinese steel companies. According to public data, the net profit of Angang Steel's first three quarters fell by 91% year-on-year. But global iron ore prices have reached the turning point. Ma Guoqiang, general manager of Baoshan Iron & Steel Co., Ltd. said that the profitability of the domestic steel industry is expected to gradually improve. Baosteel's third quarterly report showed that from January to September, the net profit attributable to shareholders of listed companies was 6.321 billion yuan, and the basic earnings per share was 0.36 yuan. Among them, the net profit in the third quarter was 1.242 billion yuan, a year-on-year decrease of 51.32%. Ma Guoqiang said that the demand for major downstream steel industries in the third quarter recovered slowly, and the prices of major raw materials remained at a high level. The overall profit of the industry fell sharply in the second quarter. The domestic macro environment and steel market in the fourth quarter are still not optimistic. According to the latest data of China Steel Association, from January to September this year, the average sales profit rate of key large and medium-sized steel enterprises is only 2.99%, far lower than the average level of the industrial sector. In this 2.99%, if the mine profits and investment income are deducted, the average profit margin of the steel industry is only about 1.5%. This is the lowest value in the past decade. The domestic steel industry continues to be in a state of meager profit or even loss. Anhaixuan, a researcher in the metallurgical industry of China Investment Consulting, said that the high price of iron ore is the main reason for this phenomenon. While iron ore prices plummeted, steel prices also fell. Since mid-October, domestic steel mills have successively lowered the ex-factory price of steel in November: Baosteel has lowered the price of some products by 200-600 yuan per ton; WISCO has lowered the price of various steel products by 150-500 yuan per ton; Angang Steel's price cuts range from 100-300 yuan/ton. China's steel industry is still squeezed by the high price of iron ore and profit margins. An Haixuan said that due to the relatively sluggish domestic and international market demand, the growth rate of production and sales in the previous steel industry has slowed down. In An Haixuan's view, the price of steel products fluctuated downwards, and the profitability of the steel industry was at a low level. According to the calculation of Orient Securities, the low profit of China's steel industry as a whole continues to move downwards. It is expected that the profit of steel mills will not improve in the short term. However, the price of iron ore fell, which made domestic steel mills take the initiative to seize the favorable position. Anhaixuan believes that this will play a role in the future of domestic steel mills in the international trade. An Haixuan agrees with Ma Guoqiang's point of view. He also believes that the decline in iron ore prices will bring great benefits to domestic steel mills in the short term. With the steel prices in the fourth quarter entering a volatile market, especially the downward price range of iron ore has been established, the industry believes that the cost pressure of steel enterprises will be eased. Regaining pricing power In the first half of 2011, China imported about 1/5 of the total imports from China's four major iron ore suppliers, an increase of 4% over the same period last year. China's iron ore import channels are increasingly diversified. The media previously quoted Xu Xu, president of the China Chamber of Commerce for Import and Export of Minerals and Chemicals, as saying that the traditional status of Australia and Brazil is being challenged. Australia, Brazil, India and South Africa are traditional Chinese iron ore suppliers. Xu Xu suggested at a meeting that China should actively develop iron ore trade with countries such as Russia, Vietnam and Kazakhstan. The world's three largest mining companies Rio Tinto, BHP Billiton and Vale control three-quarters of the world's seaborne iron ore supply. On October 27, the Sudanese Ministry of Mines announced that Sudan will export 22,000 tons of iron ore to China in the near future. This is the first time that Northern Sudan has exported iron ore since 1967. According to the website of the Ministry of Commerce of China, a Chinese-funded enterprise has obtained a license for Sudan to export 40,000 tons of iron ore to China. Global steel growth is mainly from China, while China's steel demand growth is slowing. Ma Guoqiang, general manager of Baoshan Iron and Steel Co., Ltd. believes that at the end of 2012 or in 2013, the tension in iron ore supply will be eased or even reversed. From the perspective of the global supply of iron ore resources and the profitability of the global steel industry, the return of iron ore prices is in line with the requirements of the common development of the industrial chain. Dai Zhihao, deputy general manager of Baoshan Iron & Steel Co., Ltd. also admitted that the senior officials of Baosteel Group recently visited some countries to inspect iron ore and found that many countries are investing in iron ore on a large scale. Dai Zhihao said that the large amount of investment attracted by the surge in iron ore prices in recent years will generate a large amount of production capacity in a few years, and the global iron ore supply and demand relationship has been reversed in advance. Anhaixuan, a researcher in the metallurgical industry of China Investment Consulting Co., believes that the reversal of the iron ore supply and demand relationship is difficult to achieve in the short-term. He said that the price decline was affected by multiple factors and that the market should be further developed in order to achieve a reversal. Despite this, Zhang Changfu, vice president and secretary general of China Steel Association, revealed that the three major mines and China Steel Association are currently discussing the introduction of a more transparent and reasonable pricing mechanism. Zhang Changfu pointed out that at present, foreign mines are in wide contact with customers for negotiation. On the basis of the current price agreed by the supply and demand sides, the three major mines have proposed new pricing ideas, but it will take a long time to go. The plunge of iron ore has brought favorable external environment to Chinese steel enterprises. An Haixuan said that the three major mines have negotiated with China Steel Association, and domestic steel mills are not completely in a passive position. On the contrary, there is a tendency to become passive. An Haixuan also believes that the use of spot pricing for iron ore has gradually become a trend, and it is very difficult to return to the long association model. This price decline just provides such an opportunity for competition. However, He Rongliang, an analyst at the China Merchants Productivity Promotion Center, expressed caution. The short-term oversupply cannot change the bottleneck of long-term iron ore market demand growth and limited supply resources. In the view of He Rongliang, even if it is based on the current market conditions and changed into a pricing model that is beneficial to Chinese steel companies, it may lose the overall situation because of small profits. Chinese steel mills need to be cautious in finding rules that are both suitable and long-lasting, rather than just the pricing model when the price collapses. He Rongliang believes that stable cooperation is the key.