Iron ore prices tend to fall

Two “benefits” news have recently attracted attention from all walks of life: Vale, one of the three major international miners, plans to cut iron ore prices by 10% in October; the 2010 steel industry report disclosed that the first half of this year included Wuhan Iron and Steel, Hebei Iron and Steel, and Anshan Iron and Steel. The profit of the 22 listed steel companies in the company has greatly increased, and it has generally achieved profitability. If this price reduction is made true, this will be the first price cut since the break-even price mechanism was broken. Then, after Vale's price cuts, how will the two extensions react? Will the fall in raw material prices make steel companies in the long-term high-cost dilemma live a good life?

Weak demand or quarterly price drop According to Brazilian local media, the news of price cuts has been confirmed by Vale. A spokesperson for the company said that as China's iron ore spot market price index fell, Vale may cut the iron ore price in the fourth quarter accordingly.

Ma Zhongpu, chief analyst of China United Iron and Steel Network, said in an interview with this reporter that the reduction in domestic and foreign demand for steel and the slowdown in the demand for downstream industries such as manufacturing are all important factors in the reduction of iron ore prices. He believes that China's steel market has shown the characteristics of high consumption and low growth of steel demand, and it is expected that the annual steel consumption level will fluctuate at a high level near the saturation point after several years. According to the data released by the International Steel Association on August 20, the crude steel production of 66 major steel-producing countries and regions in the world in July was 114.8 million tons, a decrease of 3% from the previous month. Among them, China's crude steel production was 51.74 million tons, down 3.8% from the previous period. The utilization rate of global steel mills in July was 75.1%, a decrease of 5.3% from the previous quarter.

At the same time, the high inventory of domestic iron ore ports has also made the import rate of iron ore further decrease. As of July 30, the inventory of iron ore in 19 domestic ports approached 80 million tons. According to statistics from the General Administration of Customs of China, China imported 51.3 million tons of iron ore in July, a year-on-year decrease of 11.8%, which was the fourth consecutive month of decline in China's iron ore imports.

On the other hand, the adjustment of the iron ore bargaining model is also one of the reasons for the price reduction. As we all know, starting from the second quarter of this year, quarterly pricing has replaced the traditional annual price contract for iron ore, and the miners have made quarterly price adjustments based on the spot market price index. Therefore, some experts believe that the original long-term price is once a year, and now it is 4 times a year. According to the fluctuation of the spot, the fluctuations are normal. According to estimates of the joint metal network analysts, as of August 26, the average price of the index for the three months from June to August was US$139.6/ton, which was lower than the average of the previous three months. The spot price fell, and the price of the long-term co-ordination in the fourth quarter was either declining or inevitable. Ma Zhongpu believes that the price reduction is only a slight correction, and even after the price drop, iron ore prices are still higher than last year's average price. However, after Vale intends to lower the price of iron ore, the two extensions will not be unresponsive, because the three major miners also have a game.

Whether or not steel prices will be overjoyed if prices are expected to fall out As industry insiders say, the expected drop in iron ore prices in the fourth quarter will be the first quarterly price cuts linked to the spot market this year. The decline in raw material prices can make life easier for steel companies.

The reporter telephoned the market participants of the two steel companies. They all stated that the cost pressures of the steel enterprises are still relatively large. For the long-term rising trend of iron ore prices and downstream consumption under high stocks, they generally expressed that they are not optimistic. During the recent Baosteel 2010 semi-annual performance online briefing session, general manager of Baosteel Ma Guoqiang predicted that the company's iron ore cost will decline in the fourth quarter compared to the third quarter, but the overall cost of iron ore in the first half of the year is still higher than that in the first half of the year. A substantial increase.

UBM analysts believe that in the third quarter of this year, the price of Australian iron ore rose by US$26/ton from the second quarter, causing the cost of steelmaking to increase by 274 yuan/ton, while the price of construction steel from July to August fell by 300~400 yuan from the second quarter. / Ton, the average sheet fell 300 yuan / ton. In the situation where steel production cannot be reduced, the status of “high production capacity, high inventory and high cost” in the fourth quarter will continue.

In fact, the domestic steel mills' profitability in July has been less than the first half of the year. According to the latest data from the China Iron and Steel Association, in July, domestic large and medium-sized steel mills realized a total profit of 2.86 billion yuan, a decrease of 3.39 billion yuan month-on-month, a decline of 54.24% month-on-month, and a year-on-year drop of 73.05%. The reporter also learned that in the first half of this year, the sales profitability of 77 domestic large and medium-sized steel companies was only 3.47%, which was lower than the average profit level of China's industrial sector. The industry was still in a low-profit status.

Ma Zhongpu believes that whether or not iron ore is subject to price increases will face uncertainties. In the fourth quarter, whether the world economy will be able to move out of the shadow of the European economy and the shadow of this round of asset bubbles, and promote the international steel market boom, which will in turn affect China's steel market trends. Therefore, the trend of the Chinese steel market in the second half of the year is still not optimistic.

Walk on two legs:

Speeding up internal integration + implementation of the strategy of going global With the acceleration of domestic energy conservation, environmental protection, and economic restructuring, the merger and restructuring of the domestic steel industry in the next two or three years is bound to accelerate significantly, which is the consensus in the industry.

The reporter noticed that in the recently announced annual report of the steel industry, 22 listed steel companies have achieved losses, and it is worth mentioning that Hebei Iron & Steel, which has the highest total operating income, is worth mentioning. Hebei Iron and Steel was established in January this year by Tangshan Iron and Steel Co., Ltd., which absorbed the merger of Handan Iron and Steel and Chengde Vanadium and Titanium. The company has become the second largest listed steel company in China in terms of output and income. The company’s sales manager said when connecting with reporters that the company’s substantial increase in profitability was affected by the stabilization and recovery of the domestic economy. On the other hand, it was related to further deepening the integration of the company and fully reducing costs and increasing efficiency.

It is understood that the Ministry of Industry and Information Technology of the People's Republic of China announced on August 12 the detailed requirements for structural adjustment of the steel industry, stating that it will strive to use a period of three years or so to carry out a comprehensive rectification and standardization of the state of production and operation of the steel industry in China. It will announce 2 to 3 years in the year. The list of enterprises that meet the "Code for the Production and Operation of Steel Industry".

Ma Zhongpu believes that the future development of steel enterprises depends on walking on two legs, that is, through internal restructuring and "going out" for strategic adjustment, while the steel trade is also facing the development model of innovation. Iron and steel companies and traders can only seek to stabilize, reduce operational risks, and seize the opportunities of the future, only by vigorously adjusting their relations.

In fact, China’s steel companies have also gradually realized the necessity of “going out”. Since 2005, WISCO has implemented the strategy of “going out” and has successively cooperated with Brazil, Australia, Canada, Liberia, Madagascar and other countries on mineral resources, especially in cooperation with Brazil. According to the company’s introduction, at the end of the “Twelfth Five-Year Plan” period, after the completion of all current investment and development projects at Wuhan Iron and Steel, the ore self-sufficiency rate could reach more than 75%, and the “going out” strategy achieved significant results.