The topic of improving China’s discourse power as a major iron ore demander and renovating the iron ore industry order has gradually been forgotten by the market and has recently been mentioned again. On May 25, Li Xinchuang, deputy secretary-general of the China Iron and Steel Association and director of the Institute of Metallurgical Planning, said that “China Steel Association is planning to establish an authoritative Chinese iron ore price index and first introduce the domestic ore price index. Launched the import ore price index."
The establishment of China's own iron ore price index must be placed under the backdrop of the order of the iron and steel industry, which is one of the basic industries for the reorganization of the national economy. The reorganization of the iron ore industry has become the top priority of the entire industry. Establishing China's own iron ore price index is the first step in rectifying the entire industry order, and the current market environment is just right.
First, the market only has the opportunity to rectify when it is weak. The iron and steel industry's order of reorganization has been discussed in the steel industry for several years. Earlier, the Ministry of Industry and Information Technology, the China Iron and Steel Association and other competent authorities and industry departments have repeatedly expressed that they must rectify the industrial order. Proposed to include a review of the right to import iron ore to improve the overall import concentration of imports; to implement an iron ore agency mechanism, several large iron ore importers represent some small and medium-sized steel companies to purchase, only to earn 1-3% point agency fee.
It seems that these scenarios are very good and they have a certain overall feasibility. However, several years have passed and none of these options can be implemented. The reason is that, apart from the fact that the original interest relationship is difficult to break, the choice and grasp of the time point for adopting a solution are also another major cause that has not been implemented.
In the past 10 years, China’s demand for iron ore has increased dramatically. In 2010, imports exceeded 600 million tons, a 8.6-fold increase over the past decade. The production capacity of the steel industry has grown by more than two digits per year. In the context of this continuous growth, the trading of iron ore is a profitable industry with little risk and high profits. However, during the 12th Five-Year Plan period, the overall growth rate of the Chinese steel industry has been determined with the shift in China's economic model and its own large base. In addition, the control of overseas expansion of Chinese companies’ resources and the release of production capacity of the three major mines in the next few years will provide an environment for the loose supply of the iron ore market in the next few years. Only in this trend of overall oversupply, the entire industry may have room to do the overall normative thing without encountering great resistance. It is now such a time when the macro background is reversed.
Second, despite the unfavorable factors faced by the China Iron and Steel Association leading the lead in China's iron ore price index, there is still a need to stick to it.
At present, there are three major iron ore indexes in the world, namely TSI index of Global Steel (SBB), MBIO index of Metal Bulletin, and Platts index of Platts. In fact, many steel companies chose or were forced to choose the Platts Index as the standard for quarterly pricing.
In April 2010, the long-term pricing of iron ore that had been in use for 20 years was forcibly changed by Vale, Rio Tinto, and BHP Billiton's three major mining companies to quarterly index pricing. However, these are indices compiled by iron ore suppliers and foreign-funded institutions. China, as the largest demanding country that accounts for half of the global iron ore trade, must establish its own index.
Chinese steel companies including Hebei Iron and Steel, Shagang and other first-line companies have always considered to establish their own indices. They have also organized teams to conduct in-depth research but ultimately failed to launch. If it is established with the leadership of one company or several companies, it is not actually able to represent hundreds of companies. This credibility is actually not strong. This has been captured by the miners, and the authority of the index itself not enough.
At present, there is a point of view that “China Steel Corporation's cooperation is a semi-government organization. Is it possible for the index to be recognized by miners and overseas organizations?” Objectively speaking, this does face some negative factors, but in China, in addition to Sinosteel In the absence of an agreement, it is virtually impossible to find a more suitable institution to do this. Any new thing is a process from insufficient recognition to final acceptance. This time, the China Steel Association has adopted a transitional approach, fully taking into account the doubts of this market, first preparing to launch the domestic ore price index, and then introduce the import ore price index. This is undoubtedly a pragmatic and smart approach.
What needs to be emphasized repeatedly is that the preparation of the domestic or international iron ore price index is only the most fundamental task in the systematic project of changing the disadvantages of the Chinese steel industry. The overall need to work hard is to transform China's economic growth model, speed up the elimination of backward production capacity, and strengthen the development and utilization of iron ore resources at home and abroad. Only when these tasks go hand in hand, China's expectations of a better prospect of reversing the industry situation can be realized.