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We know that there are currently two prices in the world iron ore trading: spot price and long-term agreement price. The spot price is the retail price of the iron ore market. This price fluctuates every day, which is completely determined by market supply and demand. The long-term agreement price is referred to as the long exchange price. This price is certain for one year. The so-called iron ore negotiation is the long exchange price.
The long-term price is essentially the wholesale price reached by the supply and demand sides in order to avoid constant bargaining and increase transaction costs. The key reason for the collapse of this model is that iron ore supply and demand are diversifying. Before 2003, the gap between long-term price and spot price was small, and the spot market was small. In recent years, China and other developing countries have experienced rapid economic growth, steel companies have expanded rapidly, and iron ore demand has increased. At the same time, some new small and medium-sized mines have also been developed. As a result, a large number of non-participants in the iron ore trading market have not participated. The supply and demand side of the negotiations has made the spot market bigger and bigger.
The spread between the spot price and the long price is also expanding. The spread has an appeal to both the supply and demand sides involved in the negotiations: when the spot price is higher than the long price, the mine side wants to sell more ore to the spot market; during the financial crisis, the long exchange price is higher than the spot price, the steel mill One side wants to reject the long association mine and buy the spot mine. This price double track system is obviously unstable. Since it is impossible to include all parties in the spot transaction in the negotiations of the long-term association, iron ore in the future is likely to have forward transactions, futures and other derivatives transactions like oil and metals.
At present, the three major mines, namely Vale, BHP Billiton and Rio Tinto, which account for more than 70% of the world's iron ore supply, have stated that they will change the pricing model for the year-on-year and shorten the pricing cycle. So what kind of attitude will China, Japan and South Korea take as the world's largest buyers? At the end of March, Japanese steel companies have accepted the quarterly pricing method and determined the quarterly price. Korean steel companies will also accept it. This is because Japanese and Korean steel companies hold shares in some mines and can share the benefits of some ore prices. And because of the main production of high-end steel products, the ability to increase prices and pass the cost pressure on consumers, so Japan and South Korea steel companies have a strong tolerance for ore prices. Although China's steel enterprises are the biggest buyers, and European steel companies have expressed opposition, but analysts generally believe that the trend has gone, quarterly pricing has been difficult to avoid, there may be monthly, full spot pricing.
So what kind of impact will the long-term price mechanism disintegrate? At present, the long-term iron ore price is far lower than the spot price. Therefore, it is generally believed that the collapse of the long-term price mechanism will cause the price of iron ore imported from China to rise sharply. The profits of Chinese steel companies will drop sharply. Some people even worry about the Chinese steel industry. The whole army will be destroyed. However, I believe that the situation is not so pessimistic. The collapse of the long-term agreement mechanism will reduce the profits of steel companies, increase the price of steel products and increase inflationary pressure in the short term. Some steel companies may even go bankrupt; but in the long run, It may be the turning point for China's steel industry to truly achieve the survival of the fittest and industrial upgrading. The main reasons are twofold:
First, canceling the long exchange price means that the long exchange price and the spot price are in line. The unified price will be between the long exchange price and the spot price, which means that the spot price will fall. Since China imports both long-term mines and spot mines, China actually has some gains and losses, and the losses are not that big.
More importantly, the collapse of the long-term price mechanism may be a reshuffle opportunity for the Chinese steel industry. For a long time, Chinese companies have been restricted by iron ore imports. The low-cost and high-quality imports of long-term coal mines have been monopolized by state-owned steel giants. Private steel companies are not only difficult to get long-term mines, but even importing high-priced spot mines. Heavy.
After the collapse of the long-term price mechanism, private steel companies are expected to compete with state-owned steel giants on the same starting line, while state-owned steel giants who have long-term enjoyment of low-cost long-term mines and have gained huge profits and inefficiency will face severe challenges.
The price change of iron ore may be inevitable. What enterprises need most is to work hard to improve raw materials and increase added value through technological upgrading. From the government's point of view, the restrictions on iron ore imports should be relaxed and the demand of private enterprises should be relaxed. It is also integrated so that private enterprises can also use Changxie Mine, so that they can form a joint force in iron ore negotiations and improve China's negotiating position. In addition, the government may consider gradually establishing an iron ore futures trading market, allowing companies to use financial instruments to hedge the risk of iron ore price fluctuations.
Iron ore negotiations every year are always sighing. In the past few years, China, the world's largest importer of iron ore, has been repeatedly defeated in negotiations, each time being forced to accept the price set by the ore suppliers. New changes have been made in the 2010 negotiations. The three major ore suppliers have to abandon the original annual pricing model and change to quarterly pricing. In the future, it may evolve into monthly pricing or even full spot pricing, which will not only completely change the iron ore. The supply and demand pricing model of stone may even have a profound impact on the steel industry pattern in China and the world.