Iron ore agreement prices set a record high

BHP Billiton, one of the three major iron ore giants, will increase its offshore iron ore offer price from US$155/tonne to US$168, which is also pushing for a record high for domestic iron ore agreement prices. Iron ore monthly pricing mechanism. Analysts pointed out that this move will increase the volatility of domestic steel prices, but the key to the overall low profits of iron and steel companies still lies in the index pricing mechanism.

168 US dollars / ton hit a record high

Australia’s BHP Billiton, one of the three largest mining giants in the world, once again increased the offshore price of iron ore from Chinese steel mills: it rose from US$155/ton in January to US$168/ton, setting a domestic iron ore agreement price. A new record high.

At the same time, this also means that, although it is subject to Chinese steel companies, BHP Billiton will still shift its quarterly iron ore pricing mechanism to a monthly pricing mechanism.

Although the other two giants of the three giants, Brazil's Vale and Australia's Rio Tinto, are still adopting a quarterly pricing system, Liu Wenlu, an iron ore analyst at Steel House, points out that in fact both quarterly pricing and monthly pricing are based on the Platts Index. At present, the domestic iron ore market has already popularized the index pricing method. Therefore, no substantive changes have occurred to domestic steel companies.

“However, for the steel industry companies, BHP Billiton's shortened pricing time will undoubtedly further aggravate the fluctuations in the prices of raw materials and steel, and it is even more difficult for companies to lock in profits in advance,” said Liu Wenlu.

Steel companies are shrinking their profit margins

The Ministry of Industry and Information Technology released the “Steel Industry Operation Situation and Outlook for 2011” on February 16 shows that in 2010 China’s large and medium-sized iron and steel enterprises realized a profit of 89.7 billion yuan, of which the profits of the top 20 companies accounted for about 83% of profits. A profit accounts for about 26%, while most companies are in a state of low profit or loss. The overall profitability of the industry is not optimistic.

In sharp contrast, the BHP Billiton financial report released in the second half of 2010 showed that the company's net profit in the second half of the year reached 10.524 billion U.S. dollars, of which the iron ore business had a pre-tax profit of 5.8 billion U.S. dollars. Exceeded the sum of profits of all steel companies in China.

The Ministry of Industry and Information Technology predicts that iron ore prices will remain high in 2011. Under the support of cost, the overall level of domestic steel market prices will be higher than in 2010. In the dual role of high raw material prices and continuous fluctuations in steel prices, the sales margin of the steel industry will still be lower than the average level in the industrial sector.

Liu Wenlu pointed out that the profit space of iron and steel enterprises is being invaded by mining companies. It is not a question of Chinese steel companies accepting quarterly pricing or monthly pricing, but rather the issue of the pricing mechanism of index pricing. In the face of the index pricing mechanism, Chinese companies still have too little right to speak about iron ore prices.