It's a deal. My price.
Generally speaking, the price level of commodities is generally determined by the relationship between supply and demand, and iron ore is no exception. The evolution of iron ore pricing model in the international market is the result of the transformation of supply and demand structure, and it is also the changing process of global steel production centers.
Before 1950, the center of the contemporary steel industry was in Europe and America, with a relatively high level of self-sufficiency, relatively stable overall supply and demand for a long time, and low global trade demand. So at that time, iron ore was mainly traded in the most direct spot, and the price changed little.
In 1960s, with the rapid development of Japanese economy, the center of global steel production shifted to Japan. Japan is poor in iron ore resources and needs a large amount of imports to meet the growing production demand. Coincidentally, Australia has just discovered Pilbara's rich ore resources and entered the early mining period. Investment in iron ore mining needs a lot of money, and Japanese steel mills need a lot of iron ore at this time, so both sides have their own needs and started close cooperation. Japan provides a large amount of funds for Australian mines, but it does not control the operation, and mines have the priority to supply after output. In order to ensure that the iron ore input and output of Japanese steel mills can be continuously supplied to Japan for a long time, and the iron ore expanded by Australian mines will not be unsalable, the two sides signed a long-term supply and demand agreement contract of 15-20 years, stipulating that the iron ore price will remain unchanged for the first 5-7 years, which is the prototype of the later "long-term agreement price". In the 1970s, Europe and America began to sign a large number of long-term supply and demand agreements with reference to Japanese experience. At this time, although the iron ore price shows an upward trend, the overall range is not large. With the increasing global demand for iron ore, the pricing discourse power of mines is increasing, the time limit of price agreement is getting shorter and shorter, and the price begins to climb.
1980 forms an annual "long-term cooperative price" mechanism for iron ore, and representatives of major mines and steel mills around the world negotiate once a year to determine the annual offshore benchmark price of iron ore contracts for the next year, regardless of iron ore origin, same grade and same increase. The most important thing is to form a "first round" pricing mechanism, that is, any steel mill and any three major mines reach a price agreement for the first time, and other steel mills and mines take this as a benchmark and no longer negotiate, so the annual "long-term agreement price" can also be said to be the "deal" mine price.
Since 1990s, with the vigorous development of China's iron and steel industry, the global iron ore supply and demand pattern has changed dramatically again, and the domestic iron ore production in China has been unable to meet the rapid expansion of steel production. Since 2004, China's iron ore import demand has surpassed that of Japan, becoming the largest buyer of the global iron ore market and a veritable "global magnet". The financial crisis in 2008 led to a sharp drop in the global demand for iron ore, while the capacity expansion of major mines is still going on, greatly alleviating the tight supply and demand situation. When the relationship between supply and demand changes obviously, the disadvantages of the annual "long agreement price" mechanism become more and more obvious, because this mechanism ignores the change of spot supply and demand within one year. Once the market price deviates from the benchmark price, defaults will occur frequently. In 2009, after Japanese and Korean steel mills and the three major mines set the annual benchmark price, China reached an agreement with Fortescue (FMG) which was lower than the benchmark price by virtue of its unique advantages in global demand. 20 10 China directly rejected the annual benchmark price agreed by the three major mines, and the annual pricing of iron ore long association broke down and turned to the quarterly or monthly pricing model linked to the index.
After the 30-year-old "long-term cooperative pricing" mechanism was broken, the speed of iron ore financialization began to accelerate. 2011India officially launched the world's first iron ore futures product, namely the ore futures (IOF) jointly launched by the Indian Commodity Exchange (ICEX) and the Indian Multi-Commodity Exchange (MCX). 20 1 1 In August, Singapore Commodity Exchange (SMX) launched the second iron ore futures contract in the world. Although the participation has increased, the trading volume and pricing power are still not high because of the inability to deliver in kind. China's dependence on iron ore imports is high, and its pricing power is relatively weak, which has always been a pain in the heart of China steel mills. To this end, China has been working hard to improve the pricing power of iron ore. 20 13 10 18 China iron ore futures contract for physical delivery was listed and traded on Dalian Commodity Exchange, which was very active after listing and soon played an important role in the pricing of iron ore market in China (see the table below).
Iron ore futures contract of Dalian Commodity Exchange
Source: Dalian Commodity Exchange
skill
The iron ore futures contract launched by Dalian Commodity Exchange is based on imported fine ore with iron content of 62%, allowing fine ore with similar quality to replace delivery.
Think about it.
Why does China have such a big demand for iron ore, but its bargaining power with mines is relatively small?
02
Big MAC at sea
20 1 1 In June, an iron ore carrier with a height of 10 (362m long, 65m wide and 30m high) and a deck area equivalent to three standard football fields, with a load of 400,000 tons, was heading for Dalian Port, the planned destination of this trip, but was not allowed to dock at Dalian Port for various reasons and was forced to turn around. This ship named "ValeBrazil" is only the beginning of the "Big Ship Plan" proposed by Vale in 2007. According to the plan, Vale will spend $4.2 billion to build 35 such huge ships to form a super fleet to transport iron ore from Brazil to China.
The direct driving force for Vale to launch the "Big Ship Plan" is that the demand of China, which accounts for about 60% of the global iron ore demand, remains strong. Building its own huge ship can make up for the disadvantage of being far away from China by increasing the single transportation volume, thus greatly reducing the shipping cost and enhancing the market competitiveness.
Why did Vale put forward the "Big Ship Plan" in 2007? This is because the growth of global iron ore demand has led to a substantial increase in the amount of iron ore transported by sea, which has led to a continuous increase in sea freight. The sharp increase in freight has greatly reduced Vale's profit and sales competitiveness, and directly affected the company's overall income. The sharp increase in freight rates in 2007 also stung the nerves of the China market, especially the traders who booked the forward FOB price, which was greatly affected, and the market paid more attention to the shipping price than ever before.
Later, through the coordination and cooperation between Vale and China, until August 20 14, 400,000-ton ships finally docked at Qingdao Port, Caofeidian Port, Zhoushan Port, Lianyungang Port and Dalian Port in China, and these ports are also important transshipment centers for imported iron ore. Therefore, the total inventory changes of these ports have important reference significance for judging the short-term supply and demand changes of iron ore in China.
skill
Vale's "big ship plan" was finally not realized, and many ships were later transferred to Chinese enterprises one after another, and then signed an agreement to rent them back to Vale.
Think about it.
What pricing method should China's steel or traders choose when signing an iron ore trade price contract?
03
Waiting for the annual hurricane.
20 17 1 month, the tropical cyclone warning center in Perth, Australia issued an alarm: a hurricane is coming. The Port Authority of Pilbara also issued an urgent statement, requiring port hedland, the largest iron ore transportation port, to evacuate the ships moored at the outer anchorage, and requiring the ships in the port to evacuate before 5 o'clock local time; Ships in Dampier, another major transportation port, were evacuated before 6 o'clock local time to ensure the safety of port facilities and personnel. Just a few days before the expected arrival of the hurricane, the spot iron ore in China Port rose by nearly 7% in the short term. This price increase is not unreasonable. The stronger hurricane and rainy weather caused BHP Billiton's iron ore production to decrease 1 1% compared with last quarter.
Because the southern hemisphere has a larger ocean area and a milder climate than the northern hemisphere, there are relatively many hurricanes. Hurricanes in the southern hemisphere mostly occur in 1-March, especially1,which is also the rainy season in southern hemisphere countries. Both Australia and Brazil are located in the southern hemisphere, especially the Pilbara mining area in Australia is located on the west coast, which is most affected by the climate in the western Pacific. When the storm comes, it will often have a great impact on mining operations, railway transportation lines and port loading operations, while the average inventory of imported mines in China is only 30 to 40 days. In addition, the main mine producing areas in China are in winter at this time, and the output will decrease seasonally due to the influence of weather and spring. Once the production and transportation of iron ore in the main importing places are blocked for more than three days, it will have a great impact on the iron ore market price in China, so it is necessary to pay attention to the hurricane that may suddenly appear at this time of the year. Especially after China iron ore futures are listed and traded, hurricanes are more sensitive to the short-term impact of futures prices.
skill
At present, the weather forecast is basically presented in real time on relevant websites, and people can generally predict the changes of the hurricane that is forming in advance, so as to predict the impact on the main iron ore producing areas.