The statistics of China Iron and Steel Association in October showed that the monthly loss of 71 large and medium-sized steel mills reached 5.8 billion yuan, which also means that the Chinese steel industry has suffered monthly losses for the first time in six years. At such a high price, can China's steel industry that has no retreat win international iron ore pricing power? The author believes that this is a "blank check" that cannot be honored. If the Chinese steel industry does not come up with a complete set of strategies and tactics, it cannot win the "iron ore battle" with the three major mining giants.
After reading Clausewitz's "Theory of War", you will understand that the three major principles for the winning battle of iron ore in China and abroad are: concentrate all the forces of the steel industry to fight this "war"; concentrating superior forces against the weak forces of the other side; Quickly gain war opportunities.
From a strategic perspective, China's steel mills are not yet ready. There are three basis for this conclusion:
First of all, negotiations between Chinese steel mills and the three major mining giants are in fact not fair. We have the largest steel production capacity in the world and the largest iron ore buyer in the world. However, the other party owns 70% of the global iron ore shipping trade volume. As long as the Chinese steelworks stove is opened and the money is earned, the other party can use the out of stock to “force the houseâ€.
Second, the negotiations between the Chinese and the three major mining giants cannot truly achieve "win-win."
The price of iron ore began to rise at the beginning of 2003. At that time, the price of domestic fine iron powder was generally less than RMB 300/ton, and the contract price of 65% of fine ore in Australia and Pakistan was about US$ 20, 2003. The average cif price of imported iron ore in the country was around US$26 in the month, and the price of spot and long-term ore was basically flat. After that, the price of iron ore began to climb all the way. By March 2008, the price of 66% Fe fine powder in Hebei exceeded 1,700 yuan per ton, and in some regions it reached 1,800 yuan per ton, and the price rose sixfold in five years. In the meantime, the international iron ore giants have repeatedly struggled and forced the price of long-term minerals to rise. In 2008, the agreement price of 65% fine ore rose to 81.4 U.S. dollars, and that of the Australian mine rose to 94 U.S. dollars. The fee rose, and the longest CIF mine price reached US$190.
The price of international iron ore is bought by the Chinese. The bubble is also “blown†by China. The price of iron ore has gone up for 6 years. Chinese steelmakers still have money to make, which is to earn money for the downstream industry. The “win-win†on the surface of the steel mills and the international mining giants is actually at the expense of China’s downstream industries. The result was that China lost.
Third, the entire industry of the Chinese steel industry has suffered a loss, and the move by the foreign side to “force an official†out of stock has no use. However, as long as the Chinese steel mills start to make profits, the price increase can still be fatal. This is why, as of September this year, the global financial crisis has become clear, and Vale still dares to raise prices.
We may wish to reflect on why China does not have equal right to negotiate. The reason is that the largest buyer of iron ore is made up of thousands of large and small steel mills and cannot have the same right to talk with highly concentrated iron ore. Second, "win-win" is an illusion. Let the mining giants get more than 300% of profits, not in line with the law of market value. The Chinese side has to make a fuss about the total amount of imported iron ore. China's steel output and iron ore imports must find a balance. Third, at present, the price of iron ore has entered a low point, but the other party is certainly waiting for an opportunity or seeking to change the rules. Therefore, the Chinese side must be prepared to "start another" and lay a new "war."
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