Foreign iron ore pricing with unreasonable bargaining power is tilting toward China


SMM net news: "under the influence of many factors, iron ore bargaining power will gradually tilt to China." Analysts believe that China's iron ore imports entering a decline cycle, alternative iron ore scrap supply is increasing, the international influence of China's iron ore futures will promote the balanced development of iron ore bargaining power.

China is the world's largest consumer and importer of iron ore. However, due to the highly concentrated supply of upstream iron ore and the scattered steel production capacity in China, China has long lacked the pricing power to match its consumption status in iron ore trade. At present, more than half of iron ore imported by Chinese steel mills is from changxie. Changxie mine has been using index pricing since 2010. Since platts entered the iron ore market in 2008 and no Chinese companies entered the consulting industry of index pricing during the same period, foreign mines have implemented the policy of using platts index as the basis of long-term agreement price in the iron ore industry. "Platts index is customized with a small sample to determine the price of most suppliers, which leads to the irrationality of the pricing mechanism of imported iron ore. As the price of iron ore follows the price of steel, the steel industry is often in a passive situation of increasing revenue without increasing profits." Wang jing said the lack of pricing power has led to an upward tilt in the industry chain. The industry environment is changing. While China remains the world's largest importer of iron ore, the trend has changed since 2018. Customs data shows that.

In 2018, China imported 1.064 billion tons of iron ore, down 1 percent year-on-year. In 2019, iron ore imports continued to decline, with 877 million tons of iron ore imported in the first 10 months, down 1.6 percent year-on-year. According to wang jing, China's economic development mode and growth momentum are changing, industrialization and urbanization are entering the middle and late stage, the steel consumption intensity per unit GDP is obviously declining, the total steel consumption is entering the peak stage, and in the medium and long term, it tends to decline, which will lead to the decrease of raw material demand. At the same time, alternative iron ore scrap resources are gradually growing. According to the China scrap iron and steel application association, China's total scrap production in 2018 was around 220 million tons, an increase of 20 million tons year on year. China's total scrap volume is expected to be 250 million tons in 2019, up more than 30 million tons year-on-year. By 2030, the production of steel scrap will reach 320-350 million tons.

Overall demand for steel is slowing and scrap supplies are increasing year by year, reducing China's demand for iron ore. The global iron ore market is gradually transitioning to a buyer's market, providing conditions for the pricing of iron ore in renminbi. On October 11, Rio tinto mining & trading (Shanghai) co., ltd. signed a cooperation agreement with shandong port group rizhao port, and completed two spot commodity trading RMB transactions totaling 11 million yuan. The agreement is Rio tinto's first yuan-denominated supply contract with a Chinese steel company. As early as 2017, the Brazilian miner vale and Chinese steel companies started the regular settlement of iron ore trade in renminbi.

He wenbo, party secretary of the China iron and steel association, recently called for a healthy relationship between iron ore supply and demand that meets the common interests of both upstream and downstream. To this, several big international miners respond positively. BHP billiton said it supports a variety of iron ore price index healthy competition, mixed pricing. Iron ore bargaining power has begun to tilt toward China. FMG also said it supports pricing mechanisms that accurately reflect iron ore supply and demand and provide certainty for the industry. At the same time, China's iron ore futures pricing international influence is gradually rising.

Since China's iron ore futures officially introduced foreign traders in May 2018, the trading scale of foreign customers has grown rapidly, the market structure has been further improved, and the price influence continues to increase. By the end of October this year, 172 foreign customers from 15 countries and regions had opened accounts in dayang to participate in iron ore futures trading. Among them, 111 overseas clients participated in trading, and 47 overseas brokerage institutions completed entrustment business filing. As the iron ore futures price formation mechanism in China becomes more reasonable, the correlation between the domestic and foreign prices of iron ore keeps increasing, which is conducive to the spot market pricing and settlement with reference to the futures price and the optimization of the iron ore trade pricing mechanism.(From SMM