Iron ore prices continue to soar? Where does the steel industry go? (Figure)

Under internal and external problems, the Chinese iron and steel industry still cannot see the spring of iron ore market in the upcoming new year. On the one hand, domestic mining is difficult and costly; on the other hand, the monopoly of the three major mines has caused the price of iron ore to soar. Many insiders said that it is difficult to be optimistic about the future situation. It is worth noting that despite the fact that China Iron and Steel Association announced that the 2011 annual iron ore negotiations have already begun, the word “negotiation” is rarely mentioned in such a high-profile ore meeting. What everyone is more concerned with is, where the pricing model for ore has been set, where will the Chinese steel industry go?

Iron ore negotiations (data map)

Click here to view all news photos "Although China is currently the world's largest importer of ore, but the lack of market discourse power has always made China's steel companies in a rather embarrassing situation, short iron ore urgently needed to make up for." China Metallurgical Mine Jiao Yushu, a business association consultant, said.

He believes that it is necessary to establish an iron ore resource security and supply system as soon as possible. First, it is necessary to accelerate the development of domestic mines and the second is to accelerate the pace of "going out" offshore mining. In order to support the development of domestic mines, the government should set up green corridors to review and approve by way of joint office, accelerate the speed of mine construction, and ensure that the scale of annual production of 1.3 billion tons will be achieved in the future, thus breaking the monopoly of foreign mines.

For the development of foreign minerals, we can learn from Japan’s experience. Rights and interests of import mines must strive to achieve more than 50% of total imports, from 50 million tons to 300 million tons. "We must implement domestic shipments and national shipments, and use the Chinese cargo ships to transport imported ore. The fertilizer and water do not flow into foreign lands." It is reported that at present, only 10% of imported mines are transported by Chinese cargo ships.

According to the author of the Economic Herald, the Ministry of Land and Resources is currently planning to conduct large-scale geological prospecting operations in 21 provinces nationwide, striving to reduce the external dependence of iron ore to less than 50%. However, the development of domestic mines still faces many difficulties. If the iron ore is of low grade and is buried deeply, the value of exploitation is relatively small from the current point of view.

Before Wuzhou, Shandong Province, a prospective resource of 500 million tons of iron ore was discovered, with a potential economic value of RMB 50 billion. In an interview with the reporter, Kong Qinghui, chief of the industrial section of the Jining City Development and Reform Commission, said that at present, there are no technical equipment for mining the mine in the country, and the mining costs are relatively large. Therefore, they are not planning to develop this iron mine. This also represents the dilemma facing many domestic mines.

Industrial concentration is too low "Since the implementation of the new pricing model, China's steel industry is on the verge of a loss. Even if there are occasional profits, it is meagre. The domestic steel enterprises have become wage earners for foreign mines." Hebei Iron & Steel (000709, stocks) Group International Yao Yongbo, a trading company manager, said.

He believes that the current barriers to entry for the Chinese steel industry are relatively low, with small and medium-sized enterprises and private enterprises being too many, too scattered, and with too low concentration. In his view, mergers and reorganizations will be the mainstream of the development of the steel industry in the future. First of all, China should encourage the development of 3 to 5 large-scale enterprise groups with an output of 50 million tons or more, which have international competitiveness, and then develop 6 to 7 steel companies with a strength of 10 million to 30 million tons to take the top ten. The concentration of production capacity of steel companies has increased to more than 60%.

Secondly, Chinese companies' overseas mining and mining investment methods cannot effectively break the monopoly of iron ore giants. They should be led by domestic companies with overseas investment experience, merge overseas mine projects, and plan to find the next investment target. China's ocean shipping should also accelerate the pace of overseas mergers to provide safe and reliable transportation security.

Domestic mines encounter "death knots"

"According to the calculation of the FOB price, this year's price has more than doubled from last year, and the cost per ton of iron in China has increased by 600 yuan. According to the annual ton-iron cost calculation, China has spent more than US$40 billion more than last year, which is equivalent to losing it. A price for the Three Gorges Project." Jiao Yushu said without hesitation.

Jia Liangqun, vice president and chief analyst of "My Steel Networks" believes that the current global economic recovery has not changed as a whole. The demand for iron ore in the steel market still forms a strong support for ore prices. “Despite all the new projects started this year, we have only 13,000 new projects, but these are all major projects, and all use basic steel products. The demand for steel products remains strong.” At present, steel production capacity is heavy again, while domestic mine production The capacity is already very large. In the short term, another "fixed knot" is encountered and iron ore prices will remain firm.

Many industry participants in the meeting said that in the short term, the iron ore market will still be in a state of tight balance, but this situation is expected to change in the medium to long term. “I think the iron ore market may see a supply-demand situation in the second half of next year,” said Gan Qingren, director of the Taipei branch of Deutsche Securities Asia Ltd.