Iron ore prices continue to increase Pressure on raw material costs for steel companies

At the beginning of the New Year in 2011, the spot price of iron ore broke new ground by $190/ton, setting a record high for the year, and it is very likely to exceed the $200/ton mark this week.

The historical record of the iron ore spot transaction price was $205/ton, which was in the first half of 2008. In that year, the global sea freight rate skyrocketed, with the highest record exceeding US$100/ton, accounting for almost half of the mine price. At present, the cost of shipping iron ore from Brazil to China is less than 30 US dollars/ton.

According to the “true reflection” of the market supply and demand situation, such a spot price means that under the quarterly pricing model, the ore price in the first half of the year will remain high, and the pressure on raw material costs for steel companies will continue to increase.

The old scar that has plagued the Chinese steel industry for several years will continue to hurt.

In 2010, China imported 618.6 million tons of iron ore, a decrease of 9.99 million tons from the 627.6 million tons in 2009, a decrease of 1.4%. This is the first time since China’s imports of iron ore in 1998 and the year-on-year decline.

This is a result of the encouragement of the Chinese camp including the China Steel Association. The obvious alternative role of domestic mines has become a card for the benefit of the Chinese and foreign players.

However, besides “volatility,” the reality of the “price increase” is just as tempting as it is in the throat.

The average price of imported iron ore for the whole year of 2010 was US$128.4/ton, which was 59.5% higher than the average landed price of US$79.9/ton in 2009; the amount of imported iron ore was US$79.427 billion in 2009, which was higher than that in 2009. The 50.147 billion U.S. dollars in the year increased by 29.928 billion U.S. dollars (about 195.3 billion U.S. dollars), and the average price increased by 60.6%.

Why did the import volume decrease and the price rise instead?

This question may not necessarily ask the mines. This is the result that the ore supplier is most willing to see. It proves that its operation has achieved great success.

Moreover, the mines believe that it is a relatively high challenge to open up enough horsepower to guarantee market supply, because expansion of production by oneself not only means huge capital investment, but also a series of potential risks from exploration, mining and transportation.

There are sharply pointed out that mining industry personnel, in fact, for the iron and steel enterprise's individual business dilemma, and even the entire industry and its meager survival status, is not enough to constitute the starting point of the supply of miners need to focus on consideration. Because, do not need to think so carefully.

"As long as China's urbanization continues and China's economic development remains stable, the steel and iron ore used must meet a certain amount," the source said.

An industry source sorted out this "vicious circle" to reporters:

"The domestic steel price and the ore price have pushed up each other. The end result is that the country will pay for high ore prices, and high steel prices will form a profit bubble for a period of time, which will stimulate the full release of domestic steel production capacity and release more iron. Ore Demand For the domestic steel industry chain, due to the instability and uncertainty of demand, after the high steel price burst, only the high ore prices, low steel prices and lower profits will remain in the country. The environment will deteriorate further. Terminal steel companies are paying more for high costs, and steel companies themselves are not getting a huge profit."

The appeal of the Chinese steel industry for the rational distribution of profits in the upstream and downstream industry chains seems to be moving further and further away from the goal, unless there is a major turning point in the relationship between supply and demand.