Pricing is closer to the spot market, iron ore prices have become more volatile

From the highs of the beginning of the year to the “high diving” that began at the end of October, the iron ore market in 2011 was comparable to a “ups and downs”. When the climax dissipates, the ore price has entered a weak market adjustment at the end of the year, and this trend is expected to continue into 2012.

According to industry sources, as the mines are put into operation and the demand growth of iron ore is slowed down, the supply and demand relationship of iron ore will be improved in the future, and the ore price is difficult to reproduce once it has been “crazy”. Not only that, the current quarterly pricing and the "one-meeting" pricing model are being widely used by steel mills and mines. As they are closer to the spot market, future fluctuations in iron ore prices will become more frequent.

Supply and demand relationship is expected to improve

In February this year, the price of iron ore had exceeded 190 US dollars / ton, and once touched 200 US dollars / ton. Since then began to shock consolidation in the high position. However, by mid-October, ore prices began to decline rapidly. Due to weak market demand, steel production showed a declining trend. At the end of November, the CIF price of imported iron ore fines was US$136.47/ton, which was a significant decrease of US$31.89/ton from the end of October. Since then, iron ore prices have entered a weak consolidation pattern and continue to be maintained at US$130-140/t.

“Current domestic iron ore prices have fallen by 23%-25% compared with the highs at the beginning of the year. Imported iron ore is down by about 30%.” Treasure Island analyst Yu Jianzhuo said that iron ore prices rose in 2011. The main reason for the price is the large demand of steel mills and the shortage of iron ore. Under the influence of factors such as expansion of mine production and slower growth of steel production, the supply and demand relationship of the iron ore market in 2012 will be significantly improved. "Since the second half of this year, the supply and demand of the iron ore market has significantly improved, and the supply and demand inflection point may occur in the future." Yu Jianzhuo said bluntly.

According to the forecast of the United Metals, the global iron ore production in 2011 will reach about 2.05 billion tons, which is 6.2% higher than the 1.93 billion tons in 2010. Global iron ore production and exports will grow rapidly in the next five years. In 2012, the global iron ore production will reach 2.28 billion tons, and it will reach 2.7 billion tons in 2015. The global mine monopoly will be reduced, competition will intensify, and the market will experience a situation in which supply exceeds demand.

Union Metals analysts pointed out that taking into account the intensity of macro control over the next year, steel demand has also been inhibited, the growth rate of crude steel production will slow down. In 2012, China's crude steel output is expected to be 730 million tons, and new iron ore demand will be 48 million tons, an increase of 7.3%.

The rapid growth in ore prices has always been one of the causes that have plagued the healthy development of China's steel industry and led to the decline of industry profits. Therefore, accelerating the distribution of iron ore and the protection of resources have become the top priority for large domestic steel enterprises. At present, Angang, Wuhan Iron and Steel Group, and a number of companies have made little progress in controlling iron ore resources overseas. According to the statistics of the Institute of Metallurgical Planning, the first phase of the Tangleili iron ore mine project held by Shanshan Iron & Steel Co., Ltd. has been partially completed and put into operation. Anshan Iron and Steel Australia's Karara iron ore is expected to be put into operation in 2012, and Wuhan Iron and Steel is also developing its iron ore resources development layout worldwide. Annual investment will be increased to form an equity mining capacity as soon as possible.

Price fluctuations are more frequent

The sharp fluctuations in iron ore prices in 2011 had a significant impact on the quarterly pricing model. Since Vale first lowered the price of iron ore, a flexible pricing system that is closer to the spot is gradually brewing. Although there is still a small gap from full spot pricing, the trend of flexible pricing of iron ore prices is gradually forming, and future price fluctuations will be more frequent.

It is reported that Vale has implemented a new pricing system for ArcelorMittal after the active price adjustment. It will be priced according to the current quarterly prices instead of the previously adopted model based on the previous quarter's pricing. The pricing model is expected to be further expanded.

“The sharp fluctuations in iron ore prices have had a greater impact on quarterly pricing. There is currently no unified pricing model.” Yu Jianzhuo stated that in addition to pricing according to the current quarterly prices, the mines will adopt “a single "Measures" pricing, and this model may be more used later. “The pricing model is more flexible. Iron ore prices will fluctuate more frequently this year than this year, but the magnitude will be less than this year.” Yu Jianzhuo expects that the average price of iron ore in 2012 will fall by about 10% from 2011.

In October this year, China Iron and Steel Association formally launched the Chinese iron ore price index. Zhang Jiabin, an analyst at Union Steel, pointed out that after the stable operation of this index has been approved by Chinese steel mills, it is inevitable that the three major iron ore giants will be recognized. The sharp fall in iron ore prices near the end of the year and the fact that Chinese steel mills have discussed with the mines to revise the iron ore price pattern in the fourth quarter undoubtedly provided opportunities for China to discuss the new price mechanism. It is understood that as the price of iron ore plummets, domestic steel mills have asked the mines to modify the iron ore price in the fourth quarter. The China Steel Association is investigating the situation of domestic steel enterprises and discussing with the three major mines to determine the new price model.

Industry insiders pointed out that the expansion of foreign mines in the future will be greater than the increase in China’s crude steel production, so the supply and demand pattern of iron ore will change, and it will be difficult for the iron ore market to return to the crazy rise. Changes in iron ore prices will be more frequent in 2012, but the price changes will narrow and the overall price will decline slowly. In 2011, the import price of iron ore averaged around US$155/ton, and it is expected that the import price of iron ore will be around US$145/ton in 2012.