The past ten months have been a heavy loss for miners, and the downturn in downstream demand has caused the price of steel prices to fall. “Imported iron ore fell sharply in October, iron ore futures fell 28%, and spot prices fell 22% to 25%. And Vale, one of the three largest mining companies in the world, actively lowered the price of iron ore agreement in the fourth quarter. In the iron ore market, it has caused a great uproar, which has aggravated the atmosphere of both the supply and demand sides in the late market," said Sun Ming, an analyst at Lange Steel. The “Twelfth Five-Year Development Plan for the Iron and Steel Industry†(hereinafter referred to as “Planningâ€) officially issued by the Ministry of Industry and Information Technology on November 7 clearly stated the ability to enhance the protection of iron ore resources. Chen Kexin, a senior expert from the expert group of Lange Steel Information Research Center, pointed out that if long-term iron ore supply and demand relationship with the three major miners can provide a stable and stable resource guarantee for China, which is a major iron ore consumer, it will be China in the long run. The benefits outweigh the disadvantages. "However, in the current situation that both steel prices and mine prices are in a downward channel, it is difficult to say whether steel mills can accept long-term prices from a long-term perspective, and China Steel Association does not specify what kind of orders will be used for such long-term price mechanisms. Price standards and ordering cycles, what results have been reached with the discussions of the three major miners are still unknown." Chen Kexin said. Zhang Lin, a researcher at the Lange Steel Information Research Center, said that in order to establish a new mechanism for iron ore prices, it is necessary to clarify whether the order price standard refers to the futures, iron ore index or spot price. At present, the iron ore price index is very chaotic. There are many indexes in the international and domestic markets. Whether the iron ore index reflecting the interests of the buyer can be used as the pricing standard is the key to the buyer's profit from the new price mechanism. In addition, she pointed out that the establishment of the order cycle is another key element in the establishment of the new price mechanism. Zhang Lin said that the current iron ore quarterly pricing model has two sides: on the one hand, due to short ordering period, quarterly contracts cause frequent fluctuations in iron ore prices; on the one hand, due to the flexibility of quarterly contracts, steel mills can rely on downstream demand and steel. The price trend in time to adjust the steel mill production and iron ore imports, it is not easy to lead to a large backlog of iron ore. “In the current low steel demand and poor steel prices, the shorter the order cycle is, the more favorable it is for steel mills. If long-term price mechanism, such as annual pricing, is adopted, many steel mills cannot determine their own one year according to market demand. Profits, they dare not lock in iron ore prices, which increases the risk of default by steel mills. However, as China’s urbanization infrastructure has not yet been completed, China’s high demand for steel will remain for a long time. Thus forming support for iron ore prices," Zhang Lin said. According to the Plan, the demand for crude steel in China may enter the peak arc top area during the “Twelfth Five-Year Plan†period. The highest peak may occur between 2015 and 2020, with a peak of about 770 million tons to 820 million tons. At the same time, the "Plan" also comprehensively predicts that the domestic crude steel-oriented consumption in 2015 will be about 750 million tons. Han Weidong, a senior expert at the Lange Steel Information Research Center expert group, said that all parties agree that a new price mechanism is difficult, and the iron ore pricing mechanism is essentially an interest mechanism. Once the original price mechanism is broken, the new price mechanism is difficult to form quickly because it involves the interests of miners, steel mills, traders and other parties. He pointed out that after the financial crisis in 2008, the iron ore pricing mechanism was rather chaotic. Due to the uncertain international and domestic economic trends, the demand for steel was uncertain. Miners, steel mills and traders chose the price mechanism in their game. The pricing model for this future imported iron ore may be a diversified model of coexistence of spot, monthly pricing, quarterly pricing and long-term price mechanism.
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