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How to crack the dilemma of China's iron ore demand

With the rapid economic development in China and the acceleration of industrialization and urbanization, the steel industry in China has also witnessed rapid development. The output of the entire industry has expanded rapidly. In 2000, the output of China's steel industry just crossed the 100 million tons mark. In 2010, the steel output reached 627 million tons. Such a large steel production capacity will inevitably generate a large amount of demand for steelmaking raw materials. Like the United States and other developed countries, scrap is the main raw material for steelmaking. The output of electric arc furnaces accounts for 60% of the total steel output. However, due to the low level of urbanization in China and the fact that blast furnaces dominate steelmaking equipment, the output of electric arc furnaces accounts for less than 15% of the total steel production, so iron ore is also the most important steelmaking raw material for Chinese steelmakers.
 
A notable feature of China's steel industry is the low industry concentration and scattered layout. In 2010, the total output of crude steel in the top 10 steel producers in the whole industry accounted for 48.43% of the total output of crude steel in the country. In the United States, Japan , South Korea and other developed countries this ratio is as high as 70-80%. At the same time, the steel enterprises are mostly the pillars of the local government, shouldering heavy economic and social responsibilities, and the competition among enterprises is more than the cooperation, which determines that no synergies can be formed on such key issues as iron ore negotiations . The "Rio Tinto espionage case" that was exposed in 2009 also confirms this from the side.
 
In addition, there is a proliferation of iron ore traders and a lack of regulation. There are now about 1,000 companies engaged in iron ore trading across the country. As long as normal trading of iron ore goes through a reshuffle, some costs are added to the mills. And based on the nature of the pursuit of profit, traders also operate in different ways from steel mills, including hoarding, buying and selling each other to boost the market, and raising prices to create a tense supply situation, which undoubtedly aggravates the chaos in iron ore imports and weakens the Chinese Steel Enterprises' Fighting Power in Iron Ore Negotiation.
 
China's own iron ore can not meet the needs of its own steel production. Although China's domestic iron ore reserves are sufficient, but the distribution of resources is more dispersed, less rich in ore, lean ore and more, low grade, high impurity, and the selection of difficult, not with no practical value, is the high cost of production in the international market Lack of competitiveness, which determines that in order to meet China's steel production demand for raw materials, the short term still have to rely on imports of iron ore. The three major foreign mines control 70% of the world's iron ore resources, and their high quality mining products, less impurities, burial shallow, low difficulty in the formation of the upper reaches of the formation of a monopoly position, you can control the output and shipments To intervene iron ore market supply and demand and price purposes. Three are usually in unison, unified action.
 
It has always been in a strong position to negotiate with the Chinese iron-steel long association with China's steel enterprises. India, as China's largest trading ore supplier, is also ambitious. On the one hand, India's own industrial base is weak and the steel industry has a lot of room for growth. This will inevitably consume some of its export resources. At the same time, India is not willing to make huge profits in the country. Take away from the big mines, so from time to time, for example, the introduction of iron ore export tariffs, restrictions on iron ore exports and other man-made policy of causing supply constraints. This makes our channels for importing iron ore even more stretched.
Chain effect of price hikes
 
Iron ore price chain effects are mainly reflected in the amount and rate of two aspects. On the one hand, construction, machinery, light industry, automobile and other industries consume a large amount of steel, steel prices will lead to increased costs; the other hand, as steel, machinery, containers, shipbuilding and other industries a larger proportion of cost, which is the most affected Obvious aspect.
 
For the machinery industry, the main impact of iron ore price increases is on the cost side, which will drive up the cost of machinery products. Due to the current fierce market competition in most machinery products in the Chinese machinery industry, it is very difficult to shift away the cost increase through product price increases, especially for
 
Some low-tech products such as ordinary machine tools, general engineering machinery, port machinery, the impact will be even greater.
 
Containers and shipbuilding are probably the most affected by higher iron ore prices. These industries are sensitive to steel prices. If the price of steel rises sharply, the Chinese shipbuilder who receives a large number of orders will face a loss of manufacturing cost over the previous selling price.
 
For Chinese automakers, the currently used plates are mainly imported, so how much their impact on the car will depend on how the international market prices of the plates change, while there are many factors that affect the international market prices. Iron ore Stone price is one. So the impact on the automotive industry but also a combination of many factors, can not just look at iron ore prices. For different car manufacturers in different situations, large car manufacturers due to their large scale, there are still a lot of bargaining power when negotiating with the steel suppliers, many large car manufacturers have signed a strategic cooperation agreement with the iron and steel enterprises , The price may be more stable.
How to crack the plight
 
In order to cope with the current bottleneck situation in iron ore imports, China should adhere to the development strategy of "going global" for steel mills and increase the investment and development efforts of overseas mines. In particular, some large-scale steel mills may increase their investment in resources global cooperation. By strengthening international cooperation, China's iron and steel enterprises have significantly increased the proportion of the total output of China's iron and steel enterprises that own equity interests in China's total imports. Because only the implementation of diversification of iron ore sources and make full use of foreign iron ore resources strategy, we can effectively guarantee the supply of iron ore in our country. In this regard, Baosteel has long tried. On January 31, 2004, Baosteel Group signed a contract with Brazil's CVRD to jointly build a steel plant in Brazil. Baosteel Group and Australia's Hammersley Iron Ore Co., Ltd. have already jointly invested to form the joint venture of Baorigi Mining Corporation Development of iron ore resources in Western Australia.
 
In recent years, WISCO has also taken the lead. At present, WISCO has invested and developed eight iron ore projects in Brazil, Australia, Canada, Liberia and other countries and has locked up 10 billion tons of equity interests and become the largest iron ore company in the world Mineral resource owner. Expected "second five"
Period, Wuhan Iron and Steel will basically achieve self-sufficiency in resources.
 
With the increasing demand for iron ore in China and the deepening dependence on foreign imports, we can also try to win international iron ore resources by diplomatic means in order to ensure the long-term security and stable development of our country's political economy. In Australia, Brazil, India, South Africa,
 
Major iron ore exporters, such as Canada, Peru and Chile, design and implement some of their foreign policy based on China's iron ore strategy. Actively develop diplomatic and economic and trade relations with the neighboring countries rich in iron ore resources such as Russia, India, Kazakhstan, Iran and Vietnam and ensure that our country can obtain stable iron ore supply from different countries under various political changes, Strategically ensure iron ore supply
Should be long-term security, while economically, can greatly reduce the ocean transport time and save the cost of marine transport.
 
In addition, it actively promoted the strategy of domestic steel companies to enter overseas steadily, set up production bases for iron ore exporting countries or took part in strategic initiatives with good awareness of iron ore mining. On the basis of consolidating the existing cooperation results, we will further encourage large steel companies to go to iron ore resources
 
Rich and not able to exploit the country, such as Peru, Chile, Mauritania and Mexico to invest and set up factories, the establishment of overseas steel production base, and as much as possible direct control, shares overseas high grade high reserves of mining enterprises.
 
Of course, countries may also consider making strategic reserves of iron ore when necessary. To turn a large number of foreign exchange reserves into resource reserves required by rare industries, on the one hand, reduces the risk of excessively high foreign exchange reserves under the background of inflation. On the other hand, because reserves of iron ore resources are in-kind and the country's sustainable development is also Benefit, can serve two purposes. If China's steel enterprises can finish the investment layout of overseas ore resources as soon as possible, China's iron and steel industry will be able to reverse the situation that iron ore imports will be controlled by others and realize the beautiful vision of China's iron and steel industry planning as soon as possible.

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