The industry behind the iron ore fierce battle is the ultimate winner

In 2010, for the iron ore industry and the steel industry, it was a year that "change" and "change" coexisted.

What has been changing is the spot iron ore price of “riding a roller coaster ride”; what has been frightened is the pricing mechanism for iron ore negotiations in 2010 – the annual pricing agreement passed from 1981 to date has changed to a quarterly pricing agreement. Prices are also starting to shift more towards spot prices. The expected changes are the Australian iron ore supplier Rio Tinto, who spoke last year for the “spy gate”, and the Brazilian iron ore supplier who has been “fluttering” for China. The Valley has renewed its "elegant branch" to the Chinese market. Unexpected changes are the first time that China's total iron ore imports have fallen for the first time in 10 years. Actively changing, the Chinese steel industry is gradually escaping from the supply of the three major iron ore. The absolute dependence of business.

At the same time, more "unchanging" "titles" are still on top of the Chinese steel industry. On the one hand, when negotiating with iron ore suppliers, Chinese iron and steel companies had to continue to sign the “Union under the City”; on the other hand, the profits of the Chinese steel industry continued to be in a meager state, applying what Wu Xiyu, honorary president of the China Steel Association, said. “The profits of steel companies are not as good as the deposit interest of banks”; iron ore suppliers are also more insistent on the financialization of iron ore.

However, it cannot be overlooked that the iron ore and iron and steel industry players are not only iron ore suppliers and national iron and steel companies, but also Wall Street’s financial predators. They either directly financed iron ore plunges **, or controlled holdings of Rio Tinto and BHP Billiton to obtain implicit returns. The increase in the price of iron ore itself is also largely related to the overprinting of banknotes by the United States after the financial crisis.

Therefore, people in the industry concluded that behind the continuous price increase of iron ore, the ultimate beneficiaries without damage are the financial institutions of the United States and the United States. Because Rio Tinto, BHP Billiton and Vale as iron ore suppliers have to withstand the pressures and criticisms of the outside world; at the same time, although China has tried many changes, it is in monopolistic market conditions and “Long-sleeved” Wall Street. In front of him, he can only swallow the bitter fruit of failure again and continue to accept the financialization of iron ore.

Changes Bureau Spot Price: Catch a Roller Coaster Since the beginning of this year, the spot price of iron ore began to soar until April, reaching a high of $200 per tonne. It is worth noting that this price is nearly three times higher than the price of around US$60 per tonne at the lowest point in 2009.

An analyst who has been tracking iron ore negotiations for a long time told the “International Financial News” reporter that on the one hand, iron ore suppliers have been pushing up sea freight through a highly financialized maritime shipping market, which has resulted in a CIF of iron ore. On the other hand, China’s increased demand for iron ore has also contributed to price increases. More importantly, from the macro-environment at that time, the emergence of global liquidity has begun to appear, affecting the dollar-denominated products.

However, the spot price of iron ore began to loosen after staying at the high spot for less than a few days. In response to the continued decline in domestic steel prices and the relative tightening of demand, the spot price of iron ore fell to around US$115 in July, almost falling back to the beginning of the year.

“Price reduction is bound to be temporary. From historical experience, iron ore suppliers will not be able to sit back and watch the continuous decline in ore prices. Coupled with the arrival of the traditional peak season in the Chinese market, iron ore prices will recover from lows to a certain degree.” The above analysts Recalls, "The implementation of the US quantitative easing policy in November is an important push for the rise in the price of ore, especially if the iron ore financial properties are getting stronger."

As it said, at present, the spot price of iron ore has already returned to the right path as the miners hope. Data show that the market "wind vane" - 63.5% of India's ore price has reached 180 yuan per ton, a record high since 7 months. China Steel Association also announced that the price of imported iron ore rose by 50.45% in November.

“After energy conservation and emission reduction, the production capacity of China's steel industry began to be released. It is expected that there will be a certain degree of retaliatory recovery in the later period. According to statistics from the China Iron and Steel Association, in early December, key large and medium-sized enterprises produced 14.05 million tons of crude steel, compared with the end of November. A slight increase of 2.7%.” He Rongliang, an analyst at the China Circulation Productivity Promotion Center, pointed out to reporters that this triggered a recent increase in ore prices.

“Ore prices still have short-term upward momentum, and the recovery of domestic steel production capacity will increase the demand for ore. In addition, India, Australia and other countries will also limit ore exports.” For the future trend of spot prices, He Rongliang predicted that “long-term Look, with the growth of production capacity of major mining companies, the market structure will change. At present, the three major mining companies have larger plans to expand production."

Recently, it was reported that some mining giants are pushing the spot price of iron ore in the form of “bidding”, which is worthy of vigilance from related departments and trade associations.

Major miners: PR cracks last July 5th, Rio Tinto "spy door" exposed. This brought the relationship between Rio Tinto and Chinese steel companies to the "freezing point." However, this year, the situation has changed, and Rio Tinto has begun to re-open the “PR” China market.

Rio Tinto CEO Aibo Nian frequent visits to China, not only to strengthen cooperation with Chinalco, but admits "willing to work with Chinese companies to jointly develop resources." In addition, Rio Tinto is the platinum sponsor of the Australian Pavilion at the Shanghai World Expo.

During his stay in Shanghai, Abena had admitted that the cooperation between Chinalco and Rio Tinto was an important step for Rio Tinto to make up for the “crack” with China. Aibo also said that "Rioto will be more proactive in communicating with Chinese resource companies and small and medium-sized steel mills."

Rio Tinto's management in China has also added new faces. In August this year, Ren Yan Yan, who had been in the mining industry for more than 30 years, began to serve as Vice President of Rio Tinto China. "His participation will strengthen the team in Shanghai and Beijing, and strengthen communication with the Chinese government and Chinese companies." Rio Tinto related people once told the "International Finance" reporter. People in the industry believe that this is one of the signals that Rio Tinto has further improved its sales network in China and showed China well.

Vale is also actively deploying the Chinese market. Following the publication of Ronaldo's advertisements in the Chinese market last year and actively sponsoring the Brazil pavilion at the Shanghai World Expo, Vale made a second listing and trading on the Main Board of the Hong Kong Stock Exchange on December 8th with the listing of the Depositary Receipts (HDR). This became the first of the three major mining companies in the world to go public in China. Vale also tried to establish a distribution center in China and reduce shipping costs, but it was not approved by the relevant authorities.

“This is an olive branch that Brazil has extended,” said He Rongliang. “The traditional sales market of Vale is in Western Europe, but he has been trying to extend his reach into the center of steel consumption—China. The listing in Hong Kong does not involve new shares. The issuance, no **, Vale is to enhance the image of Asia."

Industry sources also pointed out that Rio Tinto and Vale's “PR” China market are precisely for the better exploration of the potential of China's iron ore market.

Pricing Mechanism: Long Converted Quarterly According to many analysts, the biggest change this year is actually the change in the pricing mechanism, that is, the quarterly pricing agreement has reached the historical stage, breaking the traditional annual pricing mechanism since 1981.

In fact, the change in the quarterly pricing agreement is not without aura. As early as 2009, when the iron ore negotiations were most anxious, related parties predicted that the future Chinese mineral price contract may be “signed in the first half of the year, or signed on a quarterly basis.” In March of this year, the international coking coal negotiations (Negotiations between Australian mining companies and Japanese and South Korean steel companies) introduced the quarterly pricing agreement for the first time, which brought strong changes to the subsequent iron ore negotiations.

“The iron ore market has changed a lot and the advantages of ore companies have reached their limits. After this year, a new order in the ore market has been established and a new structure for the ore market has been formed.” He Rongliang said that this is behind the change in the pricing model. Another layer of meaning, "On the surface, we still keep the agreement mine, but in fact, has changed the appearance of the dominant position of the agreement mine."

For the quarterly pricing agreement, China Steel Association has agreed. However, China Steel Association does not agree with Platts Energy's index pricing method (China's spot market price index). The Platts Energy Index is determined by the average 3-month price of the 65% grade iron ore CIF of Qingdao Port. In this regard, the Secretary-General of the China Iron and Steel Association, Shan Shanghua questioned that the Platts Index uses the imported iron ore spot price as an indicator. The spot mine only imports about 20% of the country's imports. “The price of a few spot mines determines the global price. Representative." In addition, CIF also involves frequent changes in sea freight.

However, it is almost impossible for Chinese steel companies to return to traditional pricing methods in a short period of time. As pointed out by Liu Yongshun, the original chief representative of the Chinese iron ore negotiations, iron ore indexation is the development trend of the world's bulk commodities. “Any country can't stop it. Chinese steel companies need to adapt and study in depth.”

Source of ore: The external dependence of foreign steel producers in China is also gradually changing. Industry sources told reporters that this year's total iron ore import may decline for the first time in 10 years, and the degree of foreign dependence may also fall below 60%.

In fact, before that, Xu Lejiang, chairman of Baosteel Group, once predicted: “For the whole year, the import volume of iron ore will be the same as last year, or at most 1% year-on-year. The overall supply and demand pattern will not change significantly.”

It is worth noting that Chinese steel companies are constantly expanding their pace of going abroad and acquiring their own rights and interests to minimize their dependence on foreign mining.

At present, large domestic steel companies such as WISCO have formed "China prices" with small iron ore suppliers in Venezuela and Brazil.

“This will at least relieve the pressure of the high cost of steel enterprises to a large extent.” Sheng Zhicheng, deputy secretary general of the Steel Logistics Committee, told the “International Financial News” reporter.

Sheng Zhicheng also disclosed that not only WISCO but also some Chinese steel companies have acquired relatively low grade iron ore mineral resources in relevant regions abroad. "Compared to the $170 price currently on the spot market, the cost of these minerals is only around $40. This reflects the progress of Chinese steel companies," said Sheng Zhicheng.

In addition, Minmetals Group President Zhou Zhongshu said in November that as China's domestic prospecting results expand rapidly, the pace of overseas exploration by domestic companies and the reorganization and integration of the steel industry, the domestic iron ore supply and demand conflicts will gradually ease.

“In the past two years, China’s domestic iron ore supply capacity has continued to increase. It is expected that in the next three to five years, domestic iron ore production is expected to exceed 1.3 billion tons,” said Zhou Zhongshu.

Diarrhea articles Chinese steel companies: "With such low profit margins, the company is better off not producing, save cash to banks for interest." This is the honorary chairman of China Iron and Steel Association (hereinafter referred to as China Steel Association). Wu Xie. He said that the background of this remark was that, according to the statistics of the Ministry of Industry and Information Technology (hereinafter referred to as the Ministry of Industry and Information Technology), the national average profit rate of industrial sales was 5.47% for the whole year of 2009, and the profit rate of 2.43% in the steel industry was still not half the average level. .

This situation did not change in 2010. According to the Ministry of Industry and Information Technology, China’s crude steel production this year will reach 630 million tons. From the perspective of operating performance, the profit level of the steel industry is “not optimistic”, which is only 3.5%, far lower than the average profit rate of all industries in the domestic industry by 6%. At the same time, the profitability of the steel industry ranks the lowest in all industries. Of course, 3.5% is already higher than the bank deposit rate of 2.75% for the current year.

“China's steel companies have indeed encountered difficulties in their profitability.” Hu Yanping, a joint metal network analyst, told the “International Financial News” reporter. Take the average price level of iron ore in the past 11 months as an example. Compared with the average price of US$79.9 per ton in the same period of last year, the price of US$126 this year actually squeezed out the profits of the steel industry. Luo Tiejun, former deputy director of the Material Department of the Ministry of Industry and Information Technology, also stated that the profit space of the Chinese steel industry is becoming narrower and smaller, and its own “quantity problem” is an important reason. “High ore prices have also eroded industry profits.”

“On the other hand, the overall development of the steel industry is still an extensive mode of development. The homogenization competition is obvious. Under such circumstances, the overall level of domestic steel prices is not high.” Hu Yanping pointed out that this is what the Chinese steel industry is facing.” Double squeeze."

Sheng Zhicheng, deputy secretary general of the Steel Logistics Committee, expressed doubts about the 3.5% figure. "According to our statistics, as of now, the profits of steel companies may not be so optimistic." He said, "Chinese steel companies need to make changes and lay out as many as possible in the upstream and downstream industries." As previously mentioned, China Steel The company has actively deployed overseas assets and changed the status quo of foreign dependence. At the same time, many relevant departments such as the Ministry of Commerce of the People's Republic of China have also put forward the requirements for “improving the iron ore negotiation mechanism next year”.

“In addition to actively deploying in foreign countries, related companies can also increase profits by strengthening product quality, upgrading technology and optimizing product structure.” Hu Yanping suggested that “the steel industry can also carry out strategic cooperation with downstream industries.” In fact, China does not Less steel companies have already developed in this direction. It is reported that Baosteel, Shougang and other steel industries have entered the auto parts industry.

International investment banks: stealth to take the big head, "comprehensive parties look. Wall Street financial predators are the biggest beneficiaries of iron ore negotiations over the years." Some analysts believe.

First, the international investment bank has a close relationship with Vale, BHP Billiton and Rio Tinto. As is known to all, Mitsui & Co., which is closely related to Japan's steel company Nippon Steel, is one of the major shareholders of Vale. However, according to media reports, Mitsui's products are also closely related to the world-renowned investment bank Goldman Sachs. According to industry sources, Vale's revenue in the Chinese iron ore market is not only shared by the Brazilian and Japanese steel industries, but Goldman Sachs also has a share.

At the same time, in the 2009 BHP Billiton annual report, the top five shareholders were HSBC Australia Nominees Pty Ltd (HSBC) and JP Morgan Nominees (Australia) Limited, National Nominees Ltd, Citicorp Nominees Pty Limited and Citibank. The five companies hold 16.08%, 11.62%, 9.41%, 8.42% and 4.81% respectively.

In addition to holding the miners, the international investment bank has also vigorously implemented the iron ore plunge price to promote the financialization of the iron ore market. According to statistics, Morgan Stanley, Goldman Sachs, and Barclays Capital have launched cash settled iron ore speculative transactions in 2009.

In addition, the degree of financialization of the shipping market has been very high, resulting in increased transportation costs for ore. Some analysts told reporters that “the emergence of shipping financial derivatives FFA (dry bulk forward tariff contracts) has already changed the pricing model of the maritime industry. More and more financial institutions appear in the maritime shipping market, took the opportunity to invest in international high- Bulk freight rates (BDI), in turn, increase suppliers' iron ore cif prices."

At present, the international investment banks have begun to preheat the 2011 iron ore negotiations. In October this year, Goldman Sachs raised the Vale's share price target, and also raised the average spot price of iron ore sold to China in 2011, rising from US$135/ton to US$146, due to “Continuing iron ore demand in the Chinese market. Strong state."

In fact, whether it is the hype of the maritime market or the fierce price drop, or the report issued by the investment bank, relevant members of the China Iron and Steel Association have soberly understood. Luo Bingsheng, deputy chairman of the China Iron and Steel Association, once said: “Now, all three major mines are controlled by financial capital and do everything possible to pursue the highest interest of the current period, regardless of the long-term interests of the company.”

The industry believes that at present, the Chinese steel industry is still difficult to compete with the three major mines in the monopoly market and financial institutions with long-sleeved dances. The Chinese steel industry may be required to resolve relevant issues internally, such as addressing iron traders' speculation on iron ore prices. .