The Platts iron ore price index has risen by 18% in the past three months, and the price may rise to $219/ton within the next three months. Given that the three major suppliers all use the index as a basis for adjusting iron ore prices, iron ore contract prices may rise again in the first quarter of 2011.
Recently, according to foreign media reports, the Indian Ministry of Railways has increased the cost of iron ore transportation and stipulated that on the basis of current freight rates, there is still an additional 500 rupees per ton of ore to be transported. This is not the first time India has adjusted its ore export costs. For domestic steel companies, this undoubtedly seems to be spreading salt on wounds that are difficult to "heal." Experts believe that the current profitability of iron and steel enterprises is still very difficult, but after the iron ore price pricing mechanism changed during the one-year break-in period, domestic steel companies have gradually adapted, or will usher in a stage of profit-raising.
In less than 30 days, bad news frequently came to the domestic steel companies whose days have not been easy.
On January 26, according to foreign media reports, the Indian Ministry of Railways increased the cost of iron ore transportation, and stipulated that on the basis of current freight rates, it would still need to pay 500 rupees per ton of ore.
It is not just India that has the intention of restricting iron ore exports. Recently, the Russian Ministry of Economic Development has proposed to temporarily impose a 30% export tax on iron ore; the Iranian government also imposed a 50% export tax on all grades of iron ore on January 19. A lot of bad news intertwined, "iron ore agreement price is likely to pressure rise." Lange Iron and Steel Research Center analyst Zhang Lin pointed out. According to Reuters, the iron ore agreement price is expected to hit a new high of US$165 per ton in the second quarter.
The bad news that began this year at the beginning of the year is that for domestic steel companies, it is like spreading salt on wounds that are difficult to "heal." “But although domestic steel companies are at the bottom of the stage, the sales profit rate is far behind the average profitability of the national enterprises, but after more than one year of adaptation and adjustment, the domestic steel enterprises are expected to enter the profit-raising stage in the future,†said Xu Xiangchun.
Bad news
On January 26th, the Ministry of Railways of India raised the news about the cost of iron ore transportation. The news spread like wildfire. "If in the past (iron ore long period of price), the market will certainly respond." An analyst who declined to be named said. However, two days later, the price of India and mine did not appear abnormal. On January 28th, the Indian fines with a grade of 63.5% were US$191/tonne (external plate CFR price); the Indian minerals with a grade of 59% were US$155/tonne (external plate CFR), which was basically the same as the price of the previous day. Analysts believe that the domestic market is no longer sensitive to India's restrictions on iron ore exports. After all, this is not India's first adjustment of ore export costs.
On March 1, 2007, India implemented an export tax of 300 rupees per kiloton (equivalent to approximately 52.5 yuan) on all types of fine ore, lump ore and concentrate for export of iron ore, two months later (May On the 3rd) India's iron ore export taxation plan was introduced and the policy was separated by two months. In January of this year, India first imposed an export tariff of 20% on iron ore, and then increased the distance of iron ore transportation. The policy interval is only 9 days.
He Rongliang, a senior analyst at the Center for the Promotion of Circulation Productivity in China, believes that the reason why India has frequently introduced restrictive measures is that "it wants to develop the domestic steel manufacturing industry and reverse the situation of resource exports." He Rongliang believes that with the acceleration of industrialization and urbanization in India, India will increase its demand for iron ore, which will lift India’s domestic demand for iron ore. And "the fact that China has no say in resource commodities represented by iron ore also provides a lesson for India," said Xu Xiangchun.
At another level, India has introduced the content and timing of the ore export restrictions policy, "is also the result of the game between different stakeholders in India." Xu Xiangchun said. In recent years, the disputes between Indian mines and steel companies over iron ore have been endless. If mine-related interests prevail, the promulgation of export restrictions on India and China will slow down;
India is ambitious
He Rongliang and Xu Xiangchun agreed that in the short term, India’s policy of restricting ore exports has played an objective role. At present, India's annual steel output is in the 50-60 million tons level, and the export volume of iron ore is 220 million tons. By raising the export cost of domestic iron ore, it will support domestic iron ore supply in two to three years. "In the long term, India's industrialization will continue to increase the demand for iron ore. This cannot be changed," said He Rongliang. "In the future, India will import high-quality iron ore from Australia."
As far as the domestic market is concerned, the cost of importing Indian spot deposits will rise hard at the same time. At the same time, due to the major supply of spot ore mines in India and India, the supply of Indian ore will decline, which will inevitably reduce China's domestic Indian ore sources. This is only a superficial effect. Zhang Lin frankly stated that the deeper impact is that he is currently in a sensitive period of iron ore negotiations. “The policy of restricting ore exports frequently introduced in India may affect the iron ore contract price.â€
India has always been the main force of China's spot mines, and the three mine deals headed by BHP Billiton are bound to focus on spot prices. He Rongliang said: "Even if BHP Billiton shortens the protocol cycle to one month, which is equivalent to the Indian mining cycle, but in India's mining distribution channels, the global, especially China, will account for 60% of the trader's share, which will lead to any news of this link. It will be fully released or even enlarged. After that, the spot ore market will fluctuate frequently, which will affect the agreement ore.†In addition, the Russian Ministry of Economic Development has proposed to temporarily impose a 30% export tax on iron ore, and the Iranian government also On January 19th, the 50% export tax rate on all grades of iron ore began to be unfavorable. The industry is expected to increase the year-on-year steel demand for this year to 642 million tons, and the agreement price also has a chip for further price increases.
According to Reuters, the iron ore agreement price is expected to hit a new high of US$165 per ton in the second quarter, with spot prices being supported by tight supply and booming Chinese demand.
Steel companies: This winter is better than not?
Faced with the uncertainties of upstream raw materials, is it even more thorny for the domestic steel companies? He Rongliang admitted frankly, “This year's earnings of steel companies are almost the same as in 2010, or slightly better than 2010. In 2011, the operation of steel companies will be more stable.†He Rongliang's argument is basically consistent with Xu Xiangchun's view.
He Rongliang explained that as the first year of the new five-year plan, the external environment of domestic steel enterprises is relatively loose. On the one hand, investment across the country will continue to increase, and the overall external environment will stimulate the continued growth of steel consumption. On the other hand, the steel industry is a high-energy-consuming industry. Environmental compliance has become a serious injury to the development of China's steel companies in 2010. In 2011, the pressure from local governments on energy-saving and emission-reduction weakened, and it is difficult to see the situation of power cuts and power cuts. The impact of domestic steel production is less. More importantly, "After the one-year break-in period after the iron ore pricing mechanism was changed, domestic steel companies have gradually adapted to the stage of profitability," said Xu Xiangchun.
"Of course, the profitability of iron and steel companies is still very difficult. It is mainly raw material risk. The risk of raw materials not only stems from the high price of iron ore and coke, but also from the intensified fluctuation of raw material prices, which will lead to the decision-making risk of enterprises. He Rongliang said.