Home > News > IndustryNews
At present, the price of raw materials such as iron ore is at a historical high, which has greatly stimulated the recovery of mine capacity and the construction of new projects affected by the COVID-19 in 2020. On the premise that the country proposes to reduce crude steel production in 2021, the demand for iron ore in China will also correspondingly decrease. In this context, Chinese steel enterprises are facing problems such as reduced production, high raw material prices, and severe profit compression. How to improve the pricing mechanism for iron ore and increase the effective supply of raw materials is a problem that the current steel industry must face in order to achieve high-quality development.
At the information conference of the China Iron and Steel Industry Association (hereinafter referred to as the Association) held on January 27th, Luo Tiejun, Vice President of the Association, expressed his views on this issue. He pointed out that in the context of building a new development pattern, it is urgent to strengthen the protection of iron ore resources, improve the pricing mechanism for iron ore, accelerate the improvement of relevant rules and systems for iron ore futures, and address both symptoms and root causes.
The current pricing mechanism for iron ore is unreasonable
"In fact, the problem of unreasonable pricing mechanism for iron ore has been around for a long time. Ten years ago, after the collapse of the long-term cooperative system, it was mainly based on indices. However, from the current perspective, especially since early December 2020, due to tight supply, iron ore prices have risen significantly, far exceeding industry expectations." Luo Tiejun pointed out straightforwardly, "Especially in several spot trading platforms and some actual transactions using bidding, iron ore prices have risen by $7/ton to $8/ton in a single day. This fully exposes the irrationality of the current pricing mechanism."
Luo Tiejun believes that the irrational rise in iron ore prices is supported by both demand and the assistance of miners, as well as factors from the capital market. Therefore, steel companies have a high demand for improving the pricing mechanism for iron ore.
Regarding this, Luo Tiejun proposed the following suggestions:
One is to increase delivery varieties in the futures market. Luo Tiejun stated that physical delivery is an important institutional guarantee to curb excessive speculation in the futures market and a prerequisite for the effective functioning of futures. The current fixed price for iron ore discounts is unreasonable due to outdated usage. The Steel Association is promoting the adoption of dynamic premium and discount schemes by major trading firms to facilitate the delivery of iron ore futures. In fact, major trading houses have also taken multiple measures to implement the dynamic brand premium system for iron ore futures. On the same day as the Steel Association Information Conference, on January 27th, Dashang Exchange issued a notice on the addition of deliverable brands and adjustment of related premium and discount levels for iron ore futures, adding four deliverable brands for iron ore futures and adjusting the fixed premium and discount level difference.
The second is to increase the amount of iron ore spot investment in major international mines. "We hope that major international mines will regularly increase their spot investment to Beijing Iron Ore Trading Center Co., Ltd. (hereinafter referred to as the North Rail Center) and Singapore Global Iron Ore Spot Trading Platform (GlobalORE), reduce offline bidding, and make iron ore prices more open, fair, and just." Luo Tiejun suggested.
Thirdly, the Beijing Railway Center will increase its trading volume. According to statistics, in 2020, the trading volume of iron ore in the North China Railway Center exceeded 62 million tons, a year-on-year increase of 89%; There are more than 460 platform member enterprises, a year-on-year increase of 115%.
