Iron ore market exceeds supply

"Suspension will not affect the domestic supply and demand relationship. On the contrary, this is caused by the excess domestic iron ore."

At 2:30pm on April 12th, in Tangshan Qian'an, a mining staff dormitory, Zhang Hui began packing clothes back home in Langfang, Hebei. “At this time in previous years, we all had mines.” Zhang Hui said while pulling the zipper on his duffel bag, he turned to the reporter.

Looking out from the window of the dormitory building, the open-pit concentrating plant is particularly quiet in the afternoon sunshine. In addition to Zhang Hui, only 10 other workers have rest at the dorm room for 10 people. Zhang Hui has already agreed to return to his hometown the next day.

"After years, I and a few Langfang fellows went to other mines in Hebei to look for a job. Everyone had a hard time. Some of them stopped working in November last year." Two months ago, the mining area informed Zhang Hui that "indefinitely leave" and see Returning to his hometowns one by one, he also gave up hope of continuing his job search and planned to go home to help spring.

On the way to the press from Qian'an to Tianjin, Zhao Xiaokun, a business manager of a private steel company in Tangshan, who was on a joint trip to Tianjin, told the reporter that not only the Qian’an region, but also most of the small and medium-sized mines in north and northeast China have been discontinued. "Now the steel mills basically stop purchasing inner mines and only enter Indian and Australian mines, especially Australian mines."

“I personally estimate that the area of ​​domestic mine production has been about 70%.” Zhang Min, deputy general manager of Minmetals Minerals Co., Ltd., told this reporter that as the price of imported ore fell back to the lowest point of last year, the domestic mines substantially cut production. “The domestic mines are concentrated in the north, and the mines in the south are relatively dispersed. Therefore, the phenomenon of stop of production in the mine is very common in the north,” Zhang said.

In response to this situation, the relevant staff of the China Iron and Steel Association proposed many suggestions for solving the problem when interviewed by this reporter. However, so far, there is no mature rescue plan.

Discontinued status

Zhang Hao said that according to relevant analysis, if 63.5% of imported fines price is less than 60 US dollars, a considerable proportion of domestic mines will lose competitiveness.

At present, the price of imported ore is approaching the bottom line of US$60/ton. According to statistics, 63.5% of India's fines are close to an average of US$64/ton, and the higher-grade Australian ore has dropped to an average of US$60/ton.

Zhao Xiaokun's purpose in attending the conference in Tianjin is to “recognize several traders importing Australian mines”, and by the way “inquire about whether (iron ore) prices have bottomed out”.

It is understood that low-cost sales are the strategies for Rio Tinto, BHP Billiton and Vale's three major international mining giants to seize market share. “In the face of a market downturn, according to the current sales strategies of the three giants, they are maintaining a high capacity utilization rate and relying on low prices to seize the traditional spot market,” Zhang said.

As the three major mines have increased their efforts to sell at the spot market at a low price, although domestic ore prices have fallen below the lowest price level in November last year, they still do not have a price advantage compared with imported mines. Because of this, Zhao Xiaokun clearly stated to the reporter that “it is not considered in the mine” and “the mineral grade is far lower than that of the Australian mine. From the cost point of view, there is still room for the decline of Australian ore prices, and the mine is almost close to the cost price. "."

According to the statistics, in early April, the price of iron concentrate powder with a grade of 66% in Hebei Province was 670 yuan/ton (dry basis/acceptance), while the price of Brazilian mine with a grade of 65% was 600 yuan/ton (in port cart price). The price of Indian minerals with a grade of 58% is only 420 yuan/ton (port plate price).

In this case, domestic steel mills continue to lower the purchase price of domestic mines. According to my steel network statistics, in early April, purchase prices of most steel mills in northern China were already below 700 yuan/ton, and they were mainly based on acceptance. Among them, Jinan Steel and Laigang in Shandong Province lowered the purchase price of fine iron powder to 670~690 yuan/ton; Maanshan Iron & Steel in Anhui Province lowered the guidance price by 40 yuan in April and executed 670 yuan/ton on surrounding mines.

A person in charge of Shougang Guomao Company told the reporter that after the steel mills lowered their purchasing prices, some miners were not willing to accept low prices. “In this case, we can not purchase the mine directly from the port without signing the contract with the miners.”

An ore trader in Taiyuan, Shanxi, also told reporters: “Buying mines from the port is now cheaper than buying mines directly from mines. In addition to direct supply of large mines to steel mills, many traders began buying minerals directly from the port.”

According to the reporter’s understanding, major domestic traders such as China Steel and Minmetals have also gradually reduced or even partially stopped purchasing domestic mines. "We Yingkou's steel mills will not accept local mines now," Zhang said.

In addition to the large-scale production reduction of small and medium-sized mines, the days of rare and large independent mines in China have not been good.

The reporter learned from informed sources that at present, China's largest independent ferrous metal mining company Luzhong Metallurgy has suffered serious losses for several consecutive years. “The reasons for the loss are many factors such as changes in mining conditions, but the main reason for the excessive tax burden is that the consolidated tax rate of metallurgical mines was 5% in 1993, and the comprehensive tax rate in 1994 after the tax reform exceeded 20%. Taxes are as high as 41.26 million yuan, which is 4 times before the tax reform."

Not long ago, as a central state-owned enterprise, Luzhong Metallurgical Co., Ltd. has been designated by the SASAC as its "new wife's home" because it has been in a loss-making quagmire.

Does not affect supply and demand

Zhang Hao believes that domestic small and medium-sized mines have greater flexibility in production. When the market improves, there will be a wave of resumption of production in domestic mines. “Shutdown will not affect the domestic supply and demand relationship. On the contrary, this is caused by excess domestic iron ore.”

Zhang Hao said: "The large-scale stop-production of domestic mines, on the one hand, shows that domestic steel mills lack the power to digest raw materials. On the other hand, it also shows that domestic mines are pessimistic about the price of iron ore."

According to Shan Shanghua, the secretary-general of the China Iron and Steel Association, most of the major mines in China belong to steel mills. Since they are required to meet the production needs of steel mills, they have not yet stopped production. The suspension of production of small and medium-sized mines is a market activity, indicating that the current supply of iron ore in China is exceeding demand.

According to Zeng Shaojin, vice president of China Federation of Mining Industry, the suppression of domestic ore prices is not a bad thing: “Before 2003, it was precisely because the price of imported ore was always lower than that of domestic mines, so the market for imported ore was cultivated. Stone prices return to reasonable prices, for our country, we must first let domestic iron ore prices return to reasonable prices."

Zeng Shaojin further explained: "When the domestic ore price is too high, when negotiating import prices with foreign iron ore suppliers, our country must be in a passive situation."

Save the domestic mine

The domestic mines have returned to a reasonable price level to promote the development of domestic mines. This topic, which is highly valued by the China Iron and Steel Association, can be reflected in the CSAR’s resistance to the Vale price increase last year.

Shan Shanghua said: “Protecting the interests of domestic mines is a long-term strategy for the development of Chinese steel companies. Last year we were able to successfully resist Vale’s price hike and domestic mines played an important role.”

An insider of the China Iron and Steel Association told this reporter that the suspension of production of domestic mines has attracted the attention of the Chinese Steel Association, but there is no unified response plan.

However, Zeng Shaojin suggested that efforts should be made to further increase the exploitation of iron ore at home and abroad. In response to the problem of high tax burden on domestic mines, Zeng Shaojin proposed: “The state should adjust the taxes and fees for the exploration, mining, and beneficiation of domestic iron ore, and at the same time adjust the iron ore import tax to maintain a reasonable price for imported ore.”

According to Zhang Xiangqing, chairman of Tianjin Rongcheng United Steel Group, the China Iron and Steel Association should establish an iron ore trading department to appropriately increase domestic ore prices when the international iron ore price is low, and “allow domestic mines to have certain profits”. Zhang Xiangqing also suggested that the China Steel Association could establish a protection fund, and those companies that have long-term import ore mine qualifications should use 10% to 5% of their profits as a development fund to eliminate backward and support domestic mines.

Zhang Xiangqing also believes that the sluggish domestic mines may lead to the merger and merger of iron and minerals. “The three major foreign mines have mastered 70% of the global iron ore output in the downturn of the industry.”