Iron ore price may be reduced in 2020

"In 2020, there will be no more sharp fluctuations in iron ore prices." Luo Tiejun, vice president of China Iron and Steel Industry Association, made the above statement at the 2019 China Iron and steel raw material market high end forum hosted by metallurgical industry planning and Research Institute. Luo Tiejun said that this requires iron and steel enterprises to set goals in the face of iron ore pricing mechanism, strengthen frank communication between steel mills and iron ore suppliers, discard small profits of steel enterprises and make profits in the industry, and achieve pricing results acceptable to both supply and demand. Li Xinchuang, President of planning and Research Institute of metallurgical industry, said that since 2019, the accident of international mining giants has led to the expectation that iron ore supply will be tight, and the average price of iron ore in 2019 is expected to be about 95 US dollars / ton. Under the forecast that the annual supply will be greater than the demand again in 2020, the price is expected to be lower than that in 2019, fluctuate between 70-100 USD / ton, and the annual average price will be around 80 USD / ton.

This year, affected by the dam break of Vale mine in Brazil and the hurricane in Australian port, the supply and demand of iron ore once appeared tight balance, and the price of imported iron ore rose sharply. From January to November, China imported 970 million tons of iron ore, a year-on-year decrease of 0.7%; the average price of imported iron ore per ton was US $95.7, a year-on-year increase of 34.8%. The interaction between the spot market and futures market reached US $126, and the average price in August reached us $115, making the steel industry miserable. On the contrary, in August, when the highest price of iron ore was reached, CISA's steel price index was 104.75 points, down 14.13% compared with the same period last year, and the average value from January to November was 108.16 points, down 6.31% compared with the same period last year. With the increase of raw materials and the fall of steel prices, the economic benefits of the whole steel industry fell sharply due to the huge scissors difference. From January to October, the sales profit margin of member steel enterprises was 4.49%, down 3.08 percentage points year-on-year, realizing a 34.09% year-on-year drop in profits. Luo Tiejun believes that the sharp fluctuation of iron ore price reflects that the unreasonable pricing mechanism of iron ore market has not been solved for a long time.

From the current operation, all kinds of pricing attempts do not reflect the real relationship between the supply and demand sides, and the pricing mechanism that is open, fair and transparent and recognized by both sides has not been formed. Luo Tiejun said that in the near future, mining, steel enterprises and steel trading companies are also trying various risk averse trading methods, such as expanding the open platform spot trading volume to increase the index sample, promoting diversified index pricing, basis trading, etc., but this is only limited to the level of fine-tuning, so far, there has not been a pattern recognized by all parties. In November this year, Vale metals (Shanghai) Co., Ltd. signed a basis trade contract with Shandong Laigang Yongfeng iron and Steel Trading Co., Ltd. based on the iron ore futures price of dashangsuo. Market analysis indicates that the world's largest iron ore producer began to use China's iron ore futures price as a reference for trade pricing, and it is also the first time for overseas mines to use futures price to carry out basis trade, which is a milestone in promoting basis trade, optimizing pricing mechanism and improving China's price influence in the global iron ore market. Luo Tiejun said that steel will remain an important pillar industry of the national economy for a long time to come, and China will also be the world's largest consumer market for large raw materials such as iron ore. We should also plan for a long term, strengthen cooperation with foreign mines, develop new mines, increase investment in domestic mines, increase supply of scrap steel, and promote win-win cooperation in the iron and steel industry chain.