As the world's largest iron ore importer and steel producer, China has repeatedly been controlled in iron ore price negotiations. This time, Baosteel, on behalf of China's iron and steel enterprises, won the first initial pricing right -- iron ore first had "China price" (focusing on iron ore pricing right)

Lightning reached a 9.5% price increase agreement

The 2007 global iron ore negotiation, which was expected to be a tough battle, took just over ten days. Baosteel Group, which was negotiating on behalf of Chinese steel enterprises, reached a 9.5% price increase agreement with CVRD, the world's largest iron ore producer, on December 21 last year at the speed of lightning. The next day, Baosteel, together with two other major producers, BHP Billiton Australia and Hammersley, agreed to a 9.5% increase.

Baosteel's move of "cutting through the mess quickly" stunned the industry. Different from the previous years, Baosteel resolutely opposed any price increase in 2006 and took the lead in accepting the price increase; on the contrary, in the negotiations of the world's influential alliance of Japan's five major steel mills and South Korea's POSCO before that, Baosteel refused any price increase from the three major miners. It is understood that the price agreement reached between Baosteel and vale is the first time Baosteel, on behalf of Chinese steel producers, has reached an annual benchmark price with the world's iron ore giants.

Market participants believe that the 9.5% increase in the first benchmark price is basically in line with the current supply and demand situation in the international iron ore market. As the main destination of the increase of international iron ore shipping trade, China's demand for iron ore is still growing, but the growth rate has shown obvious signs of stabilizing and slowing down. In 2006, the investment in fixed assets of China's steel industry excluding mines has seen a negative growth, and the intensity of steel consumption in the domestic market has also declined.

As early as in October 2006, at the International Conference on China's iron and steel raw materials, Chinese iron and steel enterprises led by Baosteel revealed to the world's major iron ore producers such information as the current domestic iron and steel overcapacity and the rapid growth of domestic iron ore production, in an effort to make them feel that the substantial increase in prices has lost its realistic basis. At the same time, Baosteel and the global iron ore suppliers communicated in advance and negotiated in-depth. In early December 2006, Baosteel and CVRD Brazil reached a preliminary consensus that the iron ore price will increase by 5% - 10% in 2007.

"China's price" sets the industry benchmark

In fact, as the world's largest iron ore importer and steel producer, China only appeared on the iron ore negotiation table for the first time in 2004. As the biggest buyer, it has never occupied a half advantage in price negotiation, which is obviously unfavorable to the development of China's steel industry.

In the 2005 negotiation, Baosteel passively accepted the 71.5% price increase achieved by Japanese iron and steel enterprises and the world's three iron ore giants. In the iron ore negotiation in 2006, although the Chinese iron and steel enterprises led by Baosteel argued, the German iron and steel enterprises took the lead in reaching a 19% increase with the iron ore giants, which made the Chinese enterprises still in a passive position and finally accepted the increase.

In the 2007 iron ore negotiations, iron and steel companies competed fiercely for pricing power. For this negotiation, Japan's Nippon Steel and South Korea's POSCO have already announced a joint effort. Jia LiangQun, a member of the expert group of Shanghai Iron and steel industry early warning mechanism, pointed out that Baosteel was the first to sign a price increase of 9.5%, which not only represents the price accepted by major Chinese iron and steel enterprises, but also only by Japanese, Korean, German and other iron and steel enterprises, making this price the global price of iron ore in 2007.

At the same time, with the development of China's iron and steel industry, the weight of China's demand for imported iron ore in the world is likely to increase. This negotiation will gain the dominant power. In the next negotiation, Chinese enterprises led by Baosteel will be able to make a stronger voice and have a greater weight in the specific price level negotiation.

Breaking the pattern of iron ore supply and demand is fundamental

It is "a great progress" for Chinese steel mills to obtain the right of initial pricing, but we should not be blindly optimistic.

People from the China Iron and Steel Industry Association have previously commented that although the structure of China's iron and steel industry has been optimized to a certain extent in the process of implementing the national industrial policy, problems such as industrial decentralization and excessive capacity growth are still prominent. Only when "China's demand" is further organized in the process of industrial restructuring can the foundation of "China's price" be more solid.

Xu Xiangchun, an expert from Lange Iron and Steel Information Research Center, pointed out that after four consecutive years of substantial increase, under the current market background that the spot price of domestic ore is lower than that of Brazilian ore, the long-term agreement ore can still rise by 9.5%, which first shows that the supply-demand relationship in the international iron ore market has not changed significantly, and second shows that the market control power of the three iron ore producers is very strong The passive position of Yu steel works, especially Chinese steel works, has not been effectively improved.

He believes that China's iron and steel industry should establish a long-term strategic thinking, and pay more attention to the development of foreign iron ore resources while increasing the domestic mine development efforts. If China can control the new supply of 100-200 million tons abroad, it will greatly reduce its dependence on the three iron ore giants, get rid of the passive situation of being controlled by others, and improve