Iron ore oversupply pattern gradually became domestic or imported mine price "provocation"

At the 2012 China Iron Ore Conference, the price of iron ore was once again a hot topic of discussion among guests.

On February 28, Vice President of the China Iron and Steel Association (hereinafter referred to as “China Steel Association”) Wang Xiaoqi told participants from the Daily Economic News that iron ore has gradually formed a situation in which supply exceeds demand. Iron ore prices have entered the down channel. "We have exchanges with some international steel companies and ore producers. They also agree with our analysis," he said.

The reporter learned that not only the international ore prices that are mined by international miners will gradually return to rationality, but also the dependence on iron ore will decline. However, it cannot be ignored that if the high cost of domestic mines cannot be resolved as soon as possible, the “price advantage” may be lost in the fight with imported minerals in the future.

Ore prices will fluctuate

"As China's macro-control effects become more visible, the price of iron ore will further decline. We have exchanged views with some international steel companies and ore producers. They also agree with our analysis." February 28, China Wang Xiaoqi, vice chairman of the Steel Association, told the media.

He analyzed that iron ore has gradually formed a situation of oversupply, iron ore prices have entered the down channel, the recent rapid decline in iron ore prices is the signal.

In the past two or three years, the price trend of the iron ore market in China deviated from the fundamentals of the relationship between supply and demand. Long-term high ore prices have caused substantial damage to Chinese steel companies. The data shows that the sales profit rate of domestic steel companies has dropped from 6.25% in 2005 to 2.42% last year.

Wang Xiaoqi stated that in the future, iron ore prices will tend to fluctuate in an overall downward trend, and the volatility will be greatly reduced from last year, and will fluctuate within the range of 110~130 US$/ton. If the domestic steel market further shrinks, the imported iron ore prices May fall below $110/ton.

It is reported that in the fourth quarter of last year, imported iron ore prices have experienced significant dives. Among them, after September, the price of imported ore fell from the highest close to 200 US dollars / ton to 117 US dollars / ton.

However, he also stressed that even if the overall price of iron ore will gradually decline, but by the iron ore mining costs, resource taxes and other factors, ore prices fell to a certain extent will also be supported.

The external dependence of iron ore has continued to decline

The international ore prices that are not only mined by international miners will gradually return to rationality, and China’s dependence on foreign iron ore will also decline.

According to data provided by Wu Rongqing, a senior expert from the China Mining Association, iron ore was imported in excess of 40 million tons in 2010, and the actual external dependence was 61.3%, a year-on-year decrease of 2.5%; from January to November 2011, over 70 million tons were imported. The actual external dependence was 57.4%, down 3.9% year-on-year.

Wang Xiaoqi said that in the future, China’s dependence on foreign iron ore imports is expected to further reduce.

He said that in recent years, the domestic iron ore mining capacity has grown at an average annual rate of 25%. "In consideration of the construction period of 2-3 years, the mines that have been accelerated since 2008 will gradually exert their production capacity."

According to the data obtained by the reporter of “Daily Economic News” at the scene, domestic iron ore production increased by 283 million tons in 2011, a year-on-year increase of 27.15%, which can meet the needs of at least 65 million tons of pig iron production. In 2011, domestic pig iron production increased compared to the previous year. The amount of 48.93 million tons indicates that domestic production of iron ore can fully guarantee the increase in production of the year and there is surplus.

At the same time that domestic iron ore is increasing year by year, China’s overseas rights and minerals capabilities are also continuing to develop. According to the data, at the end of 2010, the equity of Chinese enterprises in foreign countries has reached 150 million tons/year, and in 2011, 30 million tons of new equity mines will be added.

Domestic ore short-term or "price war"

It is worth noting that although domestic mine production capacity is gradually being released, if the import ore price continues to decline in the future, domestic mines may face a severe test of “price advantage is no longer”.

On February 28th, my steel network provided data to the “Daily Economic News” reporter. At present, the average price difference between 63.5% Indian fines and 66% domestic refined fines in Tangshan is -30 yuan/dry tons. That is, the price of domestic refined iron powder in Tangshan area is RMB 30/ton more expensive than 63.5% Indian flour. Before the second half of last year, home-made fine iron powder occupies a price advantage, and the average spread between the two will be around 100 yuan/dry tons.

Behind the relatively high prices is the high cost of mining domestic mines. "No matter how much domestic resources are found, domestic mines have a cost in it. Its price is difficult to lower, resulting in a much higher price than imported ore." Yi Gang Information Iron Ore Analyst Xu Yuqiu had "to daily Economic News, a reporter said.

The reporter learned that the direct result of the loss of price advantage of domestic ore mines is that steel mills have reduced the proportion of domestic mines and purchased imported mines in order to control costs. My steel network statistics show that as of February 24, the proportion of the outside mines in the Tangshan steel plant was as high as 94%, that is, almost 100% of the sinters in the steel mills in the Tangshan area were using imported mines.

Since October last year, due to the obvious price advantage of imported ore, China's steel producers generally “purchase domestic mines and purchase imported mines” in purchasing strategies, and the ratio of external mines (the total amount of imported ore accounts for the percentage of blast furnace smelting in steel plants). Climb and set new highs repeatedly.

Xu Yuqiu said that at present, some domestic mines have plans for large-scale production expansion, but “If the domestic ore prices are not reduced, and production costs are still underpinning, China’s dependence on imported ore will remain relatively high”.