Iron ore pricing is also bargaining users are expected to be extremely good?

The transformation of the iron ore pricing system is by no means a one-off, and the market is the ultimate decision. The latest news shows that the quarterly pricing formula that seems to have been “studded” in the mine mouth is actually not yet stable in China.

The reporter learned from a number of domestic steel companies that the focus of China's steel enterprises and mines, in addition to the final settlement price, also includes the quarterly pricing formula itself.

The formula is not imaginary
“The price of the mine in the third quarter is still in talks. At present, there are already steel companies that have proposed, in the end, according to the average spot price in the previous quarter, it is still based on the average price of the third quarter.” A top-ranking state-owned steel enterprise with annual output. Insiders revealed to reporters that despite rumors that Japan and South Korea have accepted the third quarter price of the mine, Chinese companies represented by Baosteel still have not reached an agreement.

The news shows that for steel mills, the pre-paid delivery price is “not a problem”, and the price of each shipping period may be different. The key is to settle the price, but in the end it is given a certain degree of discount according to the original formula. Even the formulas are simply revised, and these have been included in the bargaining range between Chinese companies and mines.

According to the original quarterly pricing formula, the agreement price lags behind the spot market for one month. That is, the iron ore price in the third quarter will be calculated based on the average spot price of iron ore in China in March-May, and will exceed $140/ton after accounting. But at present, the spot price has fallen to $125/ton.

At the same time, the Chinese steel market has been falling for more than two months, and some varieties have fallen below the cost line. Compared with small steel enterprises that are more flexible in operation, the operating situation of large and medium-sized steel enterprises is more difficult.

“The reason why the second-quarter quotation was implemented smoothly was because the market was good at the time, and the steel mills could still digest it. Now it’s not going to be alive, how can it be accepted?” Shougang Group’s insiders said that any business conduct should be based on the partners. The principle of being able to live together, if one party has already incurred losses, cooperation cannot continue. From the perspective of the mine, "the purpose of the mine is not to force the steel mill", and it is an objective need to consolidate customer relationships with appropriate concessions.

“Once the steel market is sluggish and the cost cannot be transmitted downstream, the price game will inevitably occur, and the steel mills will not perform so smoothly. That is to say, the seemingly transparent quarterly pricing formula is actually not so stable at all.” .

The price of the mine in the third quarter is still undetermined
If the quarterly pricing formula is also likely to be revised, then the estimation of the overall profitability of China's steel industry in the third quarter may face important changes.

At present, the two factors of “high mine price” and “low steel price” based on the quarterly pricing formula of the mine are the basic logic for the market to judge that the profit of the steel industry will reach the lowest point in the third quarter. The collective low valuation of the steel sector has also reflected this pessimistic expectation. However, if the pricing formula is loose, the pressure on steel companies will be released to a large extent, and the industry's earnings prospects are likely to be reversed.

The reporter learned from the industry that the current price of a large steel company in East China is about 1,200 yuan / ton (including tax) in July, which is about 200 yuan / ton from the current spot price. According to the iron ore import volume of 154.4 million tons in the second quarter, about 50% of which are calculated by agreement, at present, steel mills that insist on implementing the long-term contract will pay more than 10 billion yuan in ore costs in the third quarter. For steel companies, whether they can obtain a certain degree of discount is related to whether the industry has fallen into a comprehensive loss in the third quarter.

It is reported that for the final pricing, domestic large steel mills will also depend on Baosteel's negotiations. Xu Lejiang, chairman of Baosteel Group, said in an interview with the media last week that the price of the mine in the third quarter was "still undetermined." He also stressed that Baosteel will insist on fulfilling the long-term contract and will not turn to the spot market.

Small and medium-sized steel mills are much more flexible than big steel companies that are still in the middle of glue. Last week, a moderately-owned private steel mill in Hebei told reporters that although the company has agreed to mine with the three major mines, once it is inconsistent with the financial model, steel mills will definitely buy more spot mines. "For us, as long as it is not the goods that have already been shipped by the mine, don't say anything else, the other is not a breach of contract. No steel mill can always endure a loss-making business." The source said.

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