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On August 6, the head of a large steel mill in Northeast China revealed to the newspaper that BHP Billiton has begun to push the current quarterly pricing model to monthly pricing.
The person in charge said that BHP Billiton has recently submitted monthly pricing requirements to some steel mills. However, Chinese steel mills have not yet accepted the above requirements of BHP Billiton. “We all feel that it is best to be able to implement the current quarterly pricing model until the end of the year.â€
However, the above-mentioned person in charge also said that BHP Billiton has not been far from their expected monthly pricing model. "It is possible that next year, the monthly pricing model based on the index will begin."
Pressure under index pricing
In fact, BHP Billiton's current quarterly agreement with some Chinese steel mills is also based on index pricing. The specific model is based on the onshore quotation of Qingdao MTR ore in China, and the Singapore General Index is determined. On this basis, the price for the next quarter is determined.
On August 3, Luo Bingsheng, executive vice president of China Steel Association, expressed dissatisfaction with the quarterly pricing model. He said that the index determined based on the CIF price of Qingdao Port is neither representative nor authoritative, and because the CIF price includes a large volatility of sea freight, this makes the iron ore price have a lot of hype space. .
In the past two years, BHP Billiton has been the most staunch supporter of index pricing among the three major mining companies. BHP Billiton clearly stated in a report that “the most market-based pricing mechanismâ€.
It is reported that BHP Billiton currently sells through three modes in the Chinese market: long-term supply contracts, quarterly pricing contracts and spot. Among them, quarterly pricing and spot account for the majority. Affected by fluctuations in iron ore prices and sea freight rates, more Chinese steel mills choose to trade in the form of spot.
The more flexible pricing mechanism of the three major ore suppliers has brought greater cost pressure to Chinese steel mills. The person in charge of the above-mentioned Northeast Iron and Steel Company said, “No matter whether it is quarterly or monthly pricing, it will bring great pressure on the production of the enterprise. What is more troublesome is that the steel industry is more difficult to anticipate and control due to cost fluctuations. There is a serious excess, and the risk of steel mills in the middle of raw materials and downstream markets has greatly increased."
According to the China Iron and Steel Association statistics, in June, the production cost of Chinese steel mills rose by 33.7% year-on-year, and is still rising month by month. In the first half of the year, the profit margin of large and medium-sized iron and steel enterprises was only 3.47%, which was lower than the average profit level of the industrial sector, and steel enterprises were still in a low-efficiency state.
Since mid-July, iron ore prices have rebounded rapidly. Prices have risen by 20% in half a month, and imported mines have risen from more than 120 US dollars to 150 US dollars. Domestic iron ore prices have also risen by more than 200 yuan. According to the quarterly contract price signed by some steel mills, the price of imported iron ore in the third quarter exceeded $150. Xu Xiangchun, director of information for my steel network, said that even if it is, the freight rate in Shanghai is still a good deal for steel mills.
This model has allowed Rio Tinto and Vale to start adopting a shorter cycle pricing model. Recently, Rio Tinto CEO Ai Boinian said that he would consider selling iron ore at spot price and would also be willing to adopt a quarterly pricing mechanism.
Xu Xiangchun said that after the mining company adopts a more flexible iron ore pricing mechanism, the survival situation of Chinese steel mills will be more difficult. As long as China's steel market improves, the three major mining companies can immediately increase the price of iron ore.
The person in charge of a steel plant in the northeast said that even if it accepts the pricing model of the three major mines, it may not be able to get enough ore. Although iron ore prices continued to rise by 29% in the third quarter, according to this price increase, after reaching China, the price of iron ore has reached more than 160 US dollars. But the steel mill he is in is now using the ore in the third quarter because the mill is not getting enough ore contracts. The person in charge suspected that the mining company was deliberately reducing the supply of quarterly contracts in order to sell more iron ore to Chinese steel mills at a more flexible price.
China Steel Association's response
According to data released by China Steel Association on August 3, China's imported iron ore increased by 4.06% in the first half of this year. Compared with the same period of last year, the increase in imported iron ore decreased significantly. Especially in the second quarter of the domestic steel price decline, in the second quarter of the market, China's imports of iron ore continued to fall.
Luo Bingsheng also revealed that the share of one of the three major mining companies in the Chinese market in June has dropped significantly, which has caused the company to attach great importance to it. The supply and demand relationship of imported iron ore has changed.
Industry speculation that the company that Luo Bingsheng refers to is Rio Tinto or Vale. The reason is that the CIF price is too high, compared with BHP Billiton's spot mine, and sometimes it is almost twenty or thirty dollars higher. Surprisingly, however, another reason given by steel mills is that “the pricing mechanisms of the two companies are not flexible compared to BHP Billiton.â€
Chinese steel companies, which have been led by foreign ore companies, want to pursue long-term and stable iron ore supply contracts, while on the other hand they tend to buy in stock when the quarterly price is higher than the spot price. Analysts said that from the current trend, the three major mining companies have been trying to push iron ore to the index-based spot market. The above-mentioned psychology of Chinese steel mills will undoubtedly help mining companies realize their desire to index stock.
The China Iron and Steel Association has always hoped to reduce the number of Chinese iron ore enterprises imported, and on this basis, establish an iron ore import agency system, so as to negotiate with the three major mining companies with the advantage of the import rights of a few large enterprises. Zhang Ping said that if China Steel Association can reduce the number of Chinese iron ore import enterprises to only 20 or 30 by powerful means, it is possible to sign long-term, stable and competitive price contracts with mining companies. of. But the problem is that it is difficult to cut the number of iron ore import enterprises on a large scale.
Luo Bingsheng said on August 3 that he will adjust the qualification standards of imported iron ore enterprises, re-determine the list of imported iron ore enterprises, and comprehensively promote the iron ore import agency system.
At present, there are about 110 companies in China that have iron ore import qualifications, and more companies want to enter this list. However, Luo Bingsheng said that after the adjustment, the number of enterprises that can obtain iron ore import qualifications will decline. The new list was finalized by the Sinosteel Concord Minmetals Chamber of Commerce and consisted of steel companies and traders.
According to the proposal of the China Iron and Steel Association, after the reduction of imported iron ore enterprises, other Chinese steel enterprises will be able to import iron ore by means of agent selection. Steel companies only need to pay a certain agency fee to the retained enterprises. Luo Bingsheng said that the Sinosteel Concord Minmetals Chamber of Commerce has set up a review office to review the flow of each imported iron ore and prevent imported iron ore from flowing into backward production capacity.
However, a large number of Chinese steel companies have expressed doubts about whether this measure can be promoted by China Steel.
Luo Bingsheng himself admitted that the China Iron and Steel Association will fully implement the import iron ore agency system, aiming at strengthening industry self-discipline and regulating the import of iron ore trade and the domestic market order. He said, "The agency system is an industry convention rather than a government administrative order."
Iron ore pricing is again being changed
Chinese steel companies have yet to think of a new model for the current quarterly pricing of iron ore. BHP Billiton, one of the three major iron ore suppliers, has begun to market its updated pricing methods to steel mills.