Dismal steel market shakes strong iron ore prices
A number of domestic steel mill heads said in an interview with reporters that due to the continuing downturn in the steel market, the current pricing model has caused huge fluctuations in ore prices, which has already overwhelmed many steel mills. They desperately hope that the three major mines can be restored before Long-term annual pricing.
The dismal steel market has finally shaken strong iron ore and prices have begun to recover from highs. However, compared with the operating difficulties faced by the global steel industry including China, the “easy-to-rise and hard-to-fall†ore prices still demonstrate the monopoly position of the mines. The three-major mining operation has brought a drastic cost to the steel makers due to the flexible pricing model. With fluctuations and operational risks, "return to annual pricing" has become the focus of the game between the steel industry and the mines.
It is worth noting that, in addition to Chinese steel mills, international steel manufacturers have also issued similar requirements in a depressed market environment. On the 25th, foreign media reported that Chung Joon-yang, South Korea’s chief executive officer, said that the company and other steel companies hope iron ore suppliers can return to the annual contract system. He said that due to the sharp fluctuations in the spot price of iron ore, the spot-based pricing mechanism has greatly hurt the profits of the steel industry. The fragility of the industry is also the strongest dissatisfaction with the current spot pricing mechanism.
“Everyone is also communicating and working through different channels. I hope we can negotiate with the mines and try to get the ore pricing model back to the previous model.†A person in charge of a domestic steel mill told reporters. He admitted that, in fact, since the fourth quarter of last year, the market has been in a downturn, steel prices have fallen and the cost of ore and other remains high, resulting in a very poor profitability of steel mills, product sales and even gross profit can not be maintained. It is understood that since the beginning of this year, the domestic steel industry continued its sluggish situation in the fourth quarter of last year, and steel prices have oscillated downward. As of June 21, the Myspic Composite Index closed at 148.4 points, a decrease of 3.89% from the beginning of the year at 154.4 points. According to statistics from the China Iron and Steel Association, from January to April, large and medium-sized steel companies were focused on, and the industry achieved a profit of 1.15 billion yuan, a decrease of 33.1 billion yuan over the same period of last year, a drop of 96.7%. The key large and medium-sized iron and steel enterprises had accumulated 27 losses, with a loss of 34%. The loss-making enterprises had cumulative losses of 10.4 billion yuan, a loss of 10.1 billion yuan over the same period of last year, an increase of 32 times.
Not only that, steel stocks have also become the main force in the stock market. Up to now, there are more than 10 stocks with a net book value of less than 1 in the steel sector. Anyang Iron and Steel, Angang Steel, Valin Steel, Baosteel and Wuhan Iron & Steel are among the listed companies. Among them, the net rate of Anyang Steel is the lowest, less than 0.6 times.
It is worth noting that the dismal cloud covers the global steel industry at the same time. According to reports, Japan’s Nippon Steel recently issued an announcement that during the fiscal year 2011-2012, Nippon Steel’s annual revenue was 4.1 trillion yen, and its profit was 58.47 billion yen, a year-on-year profit of 93.2 billion yen, a decrease of 37%. %; South Korea's Pohang Iron and Steel said that due to higher raw material costs and lower steel prices, business operating profit 422 billion won, a drop of 39%; Japan's second-largest steel company JFE Steel announced recently that due to rising raw material prices Its 2011-2012 fiscal year saw huge losses.
An insider of the China Iron and Steel Association told the reporter of the "Economic Information Daily" that for the steel mills, in the past annual pricing period, the steel mills could lock in some of the costs and carry out timely production adjustments. However, as the three major mining-led iron ore shifts from annual pricing to spot and index pricing, the impact of market fluctuations on steel mills is actually increased. The operation of steel plants is very difficult and the steel mills are not only losing control over cost control. Pricing and sales have also lost control, making it difficult to negotiate with downstream users on pricing.
The above-mentioned person admitted frankly, especially under the condition that the demand is weak, this kind of intense fluctuation brings the impact to the steel industry more prominently. It is worth noting that the plight of the downstream steel industry will inevitably ultimately affect the decline in upstream iron ore prices, and the three major mines will eventually pay the price for the “killing chickens and eggs†approach. “The current low iron ore price is also the best time for the 'game' pricing model for steel mills and mines.†Xu Xiangchun, my steel network consulting director, said in an interview with the “Economic Information Daily†reporter. He pointed out that objectively speaking, with the steel market downturn and the increase in global iron ore supply, compared with the fiery years of previous years, the current iron ore supply pattern has changed, which means that the three major mines pass iron The era in which ore prices have risen sharply to earn huge profits has passed. Under such circumstances, a more long-term and stable supply and demand cooperation model will not only benefit steel plants, but will also benefit mines. The reporter learned that due to the influence of Australian mining tax and carbon tax, UBS Group announced on the 25th that it lowered the profit forecast of BHP Billiton (BHP) and Rio Tinto (Rio Tinto) by 4%. The three major mines, including BHP Billiton, Rio Tinto and Vale, not only experienced declines in stock prices, but also successively conveyed unpleasant forecasts of global commodity cooling.
In fact, the mine’s attitude has “softenedâ€. According to Vale’s CEO Murilo Ferreira, Vale is planning to negotiate with its customers on its preferred pricing mechanism, but will not allow customers to switch freely.
Xu Xiangchun said that what must be seen is that due to the current uncertain economic prospects, especially when the mines still have obvious monopoly status, it is not easy to fully retreat back to the annual pricing and may find some compromise solutions among them. Add some flexible additional clauses, or similar quarterly bargaining methods, looking for a longer period between annual and short-term pricing to use the previous fixed price and determine the supply.
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