Soaring iron ore prices will push up production costs such as autos

Xinhua News Network News Baosteel Group, on behalf of Chinese steel mills and Australian mining giants, iron ore price negotiations finally reached an agreement at the "last minute" on June 23. The growth rate of different types of minerals reached by China and Australia was 79.88% and 96.5%, respectively, which were significantly higher than the increase of iron ore in Brazil's Vale.
Different mineral suppliers have reached different annual long-term contract prices for the same steel user, which is the first time in history. The year-on-year increase of 96.5% is also the largest annual increase, far higher than 9.5% last year. Experts believe that this move will drive up the cost of automobiles, machinery and other industrial products.

[background]Why negotiate to the "last minute" reached

According to China Economic Net, the Financial Times reported that Rio Tinto and BHP Billiton require Chinese iron and steel enterprise customers to accept the biggest upward adjustment in the history of iron ore prices on Monday (before the 24th), otherwise supply from Australia may be interrupted. . Rio Tinto and BHP Billiton have warned Chinese customers that some of the annual contracts will expire on June 30 and they will stop supplying them on the old terms. They said that they would switch iron ore to a higher-priced spot market.

Baosteel Group, the representative of Chinese steelmakers, suddenly announced on the evening of the 23rd that its annual “price-delayed” iron ore price negotiations with the Australian mining giants had finally reached an agreement at the “last minute” of the contract period. This avoids the pessimistic situation in the market that has been rumored to be "slip".

According to the relevant agreement provided by Baosteel Group to Xinhua News Agency at the first time, Baosteel and Australian Rio Tinto, one of the world's major iron ore producers, reached an agreement on the 2008 iron ore benchmark price. As a result, Rio Tinto's PB, Yangdi, PB ore mines will increase by 79.88%, 79.88% and 96.5% respectively on the basis of 2007 annual prices. The benchmark prices for the new 2008 Rio Tinto PB, Yangdi ore and PB blocks were US$1.4466/dmt, US$1.4466/dwt and US$2.0169/dmt respectively.

[Cost] at least 60 billion yuan a year to pay, 123 yuan per ton expensive

Industry analysts believe that China imports about 250 million tons of long-term iron ore from Brazil, Australia, South Africa and Canada each year. The average cost is estimated to increase by 33 to 34 US dollars per ton in light of the increase in iron ore prices by more than 65%. Above, the Chinese steel industry needs at least 8.4 billion U.S. dollars, or 60 billion yuan. The long-term contracts of large and medium-sized Chinese steel companies have a total annual profit of only RMB 140 billion. According to Xu Xiangchun, head of information of Beijing Steel Union, the results of this negotiation mean that the cost per ton of steel in the industry will increase by 123 yuan over the previous year.

However, Hu Kai, an analyst at Union Metals, said that although the price of sea freight had plummeted some time ago, Australian iron ore to China still costs about 60 US dollars per ton less than Brazil’s freight to China. Therefore, according to the CIF plus freight, the price of imported Australian iron ore from China is still cheaper than the price of imported iron ore from Brazil, and even cheaper than the CIF of imported iron ore from the Indian spot market.

[Impact] Steelmaking costs rise 31%, steel companies face reshuffle

Last year, in addition to the price hikes of iron ore, upstream prices such as coal, coking coal, and shipping also rose. China's average and medium-sized iron and steel enterprises in December 2007 saw an average increase in the cost of making pig iron from steel production by 31.05% over the same period in 2006.

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