China suddenly announced the suspension of purchasing iron ore in Australia

Shen Wenrong, head of Shagang, the largest private steel company in China, said that at present, the import of spot iron ore has been suspended. He said that after the spot price of iron ore reached more than US$170/ton, it had to suspend imports. The President of the Chinese Academy of Engineering and the President of the China Federation of Industrial Economics stated that if the three mines were agreed to in accordance with the conditions previously accepted by Japan, the steel industry in China will once again fall into the predicament of loss.

This is a tough attitude in the face of the three major mines and the soaring spot price of iron ore. For the first time, Chinese steel companies have publicly suspended the import of iron ore spot.

The reason for suspending imports is that I understand that because the risk is too high, steel companies cannot afford it. Yesterday, I learned from Union Metals that at present, the spot price of iron ore with a grade of around 63 is around 185 US dollars per ton. The President of the Chinese Academy of Engineering and the President of the China Federation of Industrial Economics stated that at present international shipping costs are relatively low, and he estimates that the sea freight will also rise. The iron ore price will soon reach about US$200/ton as soon as shipping costs begin. It is back to the original highest price in history.

Shen Wenrong stated that he has been using his own stock of iron ore when he has not imported iron ore. As for the temporary contracts that China's iron and steel enterprises have signed with the three major mines, Shen Wenrong did not specifically introduce them, saying that each company is different according to its own situation.

However, yesterday the president of the Chinese Academy of Engineering and the president of the China Federation of Industrial Economics stated that despite the recovery of the global steel industry including China in the first quarter of this year, the profit rate of China’s key steel companies was only around 3%. The increase in steel stocks has increased by about 40% year-on-year. If the three major mining prices agreed by Japan before, China's steel industry will once again fall into the plight of loss.

According to media reports, Nippon Steel has reached a tentative agreement with Brazil’s Vale, which will double the price of iron ore imported from the latter from April to June compared with fiscal year 2009, and increase the price to between US$100 and US$110 per ton. This is basically the asking price of the three major mines for China's steel companies.

The giants of the mining industry are pressing each step of the way. The long-term coordination mechanism has undergone disruptive changes. The quarterly pricing with shorter time has gradually become a trend. Steel experts believe that the basis for pricing will be the focus of the next game between supply and demand.

The mining giant, Brazil’s CVRD, announced its quarterly financial report on the 5th, local time, that it has reached a long-term or temporary quarterly pricing agreement with all customers worldwide, and 100% of the future contract products will be sold on a quarterly basis. Ma Guoqiang, general manager of Baosteel Co., Ltd., made the first statement in the first quarter online performance explanation meeting, and the change of iron ore pricing mechanism was “a general trend.” According to media reports, this is a further confirmation from leading steel companies of the collapse of the long-term co-operative system.

The long co-op exits, quarterly pricing is replaced, and the idea of ​​the mining giant is becoming a reality step by step. This year's iron ore negotiations also seem to have ended. The China Steel Association and Baosteel have stated that the iron ore negotiations are still in progress in 2010. This iron ore "tug-of-war" has not ended.

The author asked Baosteel to verify that Baosteel's public relations department did not respond.

For a shorter time pricing mechanism, the market obviously lacks sufficient psychological preparation. An industry source told the author, “Now whether steel mills, distributors, or research institutions, the basic criteria for the quarterly pricing, basis, etc. are all confused, it is completely unclear.”

In the game between the two sides, the iron and steel enterprises are obviously at a disadvantage. Due to the constraints of production, the bargaining chips are limited. “But this attitude must first be made clear. The asking price for mines cannot be conceded,” said Hou Zhiyu, director of the Lange Steel Information Research Center. The position of Baosteel was very flexible. Since the negotiations were not yet over, Baosteel accepted only temporary import prices, evaded the reference to quarterly pricing, and maintained the two-way advancement of negotiations and production.

A lot of quarterly pricing for mines was first proposed by BHP Billiton. The first was Rio Tinto's introduction of negotiations, and the first realization of the Vale, it is visible that the three major mines form a tacit understanding and advance together.

Baosteel is a firm supporter of the iron ore annual long-term co-operative system, but Baosteel also acknowledged that the changes in iron ore pricing mechanism appear to be the trend of the times when all three major mines support quarterly pricing. Ma Guoqiang said that in this situation, steel companies must study the specific impact of different pricing mechanisms on company operations and adopt feasible countermeasures.