It is obvious to all that the average price of iron ore index from March to May (FOB price is 147 USD/ton) is much higher than the current spot price (as of today, the CFR price of 63.5% grade ore in India is only 130 USD/ton). If the iron ore price in the third quarter is really implemented according to the quarterly index pricing model, then the difference between the implementation price and the spot price is unacceptable. In fact, the quarterly index pricing of iron ore is also facing the challenges of the pricing model of the whole steel industry chain and its own scientificity, fairness and openness. Because of this, the author believes that the current and future seaborne iron ore prices should be replaced by the mixed model of annual pricing+monthly pricing+spot pricing.
First of all, quarterly index pricing intensifies the short-term fluctuation of steel prices and unreasonably prolongs the fluctuation period.
It is not only the cost that determines or affects the price, but also the relationship between supply and demand. Iron ore quarterly index pricing tends to ignore the change of supply and demand, paying special attention to the impact of cost.
Specifically, in the upward trend of steel price, once the supply and demand change and affect the price, due to the quarterly index pricing, the high cost of raw materials in the early stage may still support the steel price in an environment of oversupply, so that the steel price can not be adjusted gradually and reasonably, and the price adjustment cycle can be extended. When people clearly realize that the artificially high price can't be supported, it is inevitable that the steel price will be adjusted quickly and substantially in the short term, which also aggravates the fluctuation of the steel price adjustment in the short term. On the other hand, when the steel industry is in a downward trend and the price is affected by changes in supply and demand, the sharp adjustment of steel prices in the early stage will force the cost of raw materials to decline rapidly. In an environment where supply is less than demand, the low raw material cost upstream cannot support the downward adjustment of steel price on the original basis, but may lead to the steel price falling again in a period of time, thus prolonging the price adjustment cycle. Once people realize that the price is low and the demand is strong, the steel price will decrease in the short term. This repetition intensifies the short-term fluctuation of steel prices and unreasonably prolongs the fluctuation period.
The quarterly pricing cycle of iron ore is between the annual price and the monthly price cycle. Relatively speaking, the annual price may have a great influence at first, but it will soon be affected by the relationship between supply and demand, and the monthly price may be ignored because it is very close to the spot price, while the quarterly price is different, which will affect the next three months. People have to pay attention to its impact, that is to say, people pay more attention to quarterly pricing and have a greater impact on prices.
In addition, the quarterly pricing of iron ore and the business risks of enterprises have basically shifted to steel mills. Iron ore producers can completely "sit back and enjoy the success", while steel producers and steel trading enterprises are in a state of "fear", because the price of steel produced with iron ore is also affected by many other factors, especially the challenges of downstream users.
Second, the quarterly index pricing of iron ore is inconsistent with the pricing mechanism of steel mills and downstream.
At present, there are more and more factors affecting the economy, and these factors are changing faster and faster. So the periodicity of many industries, such as steel industry, has changed and shortened. Therefore, even quarterly pricing is difficult to reflect this changing trend in time. In any case, in the whole industrial chain, it is definitely not a good thing if the pricing models between industries are inconsistent. We have noticed that in the past, due to the implementation of the annual contract price of iron ore, many iron and steel enterprises signed annual price agreements with downstream industries, which was conducive to stable operation.
Specifically, as far as the downstream of the steel industry is concerned, the biggest cost of the real estate industry is land, and steel only accounts for 1% ~ 2% of the real estate cost, so it has little impact; But like the automobile industry, 50%-60% of its cost consists of steel prices, and the quarterly pricing fluctuates greatly for them; Another example is the mechanical shipbuilding industry, which generally adopts the annual pricing model, especially the shipbuilding industry, because the new ship price has been determined when the shipbuilding contract is signed, but it takes 2-3 years to complete the shipbuilding. In the period when steel prices are expected to rise, it is very unfavorable for shipyards to implement quarterly contracts. ...
Due to the change of annual iron ore pricing mechanism, the pricing model of iron and steel enterprises and downstream industries is being forced to change. We believe that if this change is in the direction of more stable production and operation of enterprises, it should undoubtedly be accepted; However, if this change causes uncertainty to all links of the whole industrial chain and affects the operation of the whole industrial chain, then the game will be more intense and full of risks. As mentioned in the first point, there is no doubt that quarterly index pricing is not the result of joint choice of enterprises in the industrial chain at this stage.
Third, it is difficult to have a scientific and reasonable reference for quarterly index pricing.
At present, the quarterly index pricing refers to the three major overseas iron ore indexes: PlattsIronOreIndex of Platts, TSI(theSteelIndex) of SBB and MBIO(MBIronOreIndex) of MetalBulletin.
First of all, the design method of credible index price should conform to scientific principles. However, among the above three indexes, Platts Energy Information has a slightly detailed description in its detailed description of valuation methods and specifications, while the other two indexes are more general. Even so, Platts Energy Information did not fully disclose the important information such as the collection method of its price data and the amount of price data used.
Furthermore, the current international mainstream iron ore price index is designed based on the spot market of Indian iron ore in China, and integrates the shipping price. Can these foreign institutions be familiar with the already complicated iron ore trade in China? Especially the rationality of data sampling. Looking at some Platts index price data, we can find that sometimes the prices are exactly the same for several days, which exposes a problem that the amount of data used to calculate these index prices is far from enough. If the sample is too small and unscientific, its accuracy is even more difficult to say.
Secondly, is it reasonable for China spot market to choose only Indian iron ore prices? After all, Indian iron ore is not the only spot choice for China's seaborne iron ore, especially for products from a country with a worse reputation and full of special interests.
To sum up, the author believes that to change the pricing model of iron ore, it must be the choice of multiple models. The first choice should be the annual price, which can be determined according to the average price index of the previous year, and the enterprise pays in advance according to this price; Secondly, choose the monthly rental price. Enterprises and mines can settle prices at the end of the month or early next month according to a certain proportion of the actual monthly price. For the long-term agreement and contract established by both parties on the basis of win-win, the mine should give appropriate concessions in the spirit of the previous article. Of course, for those quantities beyond the long-term agreement, how to settle accounts can be specifically negotiated; Then there is the spot price, which is a short-term buying and selling behavior and can fully implement the market price. However, if the three major mines want to sell the spot, they must give priority to meeting the needs of those large strategic users, or try to implement the agency price through them.
Undoubtedly, it is necessary to establish a scientific, fair and open iron ore price index.
We look forward to establishing a more reasonable iron ore pricing model, jointly maintaining the stable operation of the steel industry chain and realizing the harmonious development of enterprises.