China Steel Association: A fairer, more transparent and sustainable new iron ore market order is gradually being established

The Zhitong Finance App learned that the China Iron and Steel Industry Association published an article stating that for a long time, the upstream and downstream iron ore industry chains have shown structural imbalances, and there is a stark contrast between the “rich flow of oil” by upstream international mining companies and the “difficult times” of downstream domestic steel companies. This unbalanced and unreasonable distribution of upstream and downstream benefits affects the healthy and sustainable development of the entire industry. In recent years, all parties have been calling for rule restructuring and value return day by day. The iron ore market pattern is facing profound adjustments, and a new market order that is fairer, more transparent, and sustainable is gradually being built.

First, China has hedged the “variables” of global supply with the “constants” of hyperscale markets. China is the world's largest consumer of iron ore. The relatively stable production pace and efficient logistics scheduling in the Chinese market have effectively mitigated the impact of uncertainties on iron ore supply. This market absorption capacity and buffer mechanism provides clear expectations and guidance for international mining companies, making them dare to make long-term and large-scale capital investments in the field of upstream resource exploration and development. It can be said that the stability and breadth of the Chinese market supports the continued growth of global iron ore production capacity.

Second, a diversified resource supply system is being established. In recent years, the pace of global investment in iron ore development has accelerated, and important projects in West Africa and other regions have been completed and put into operation one after another, smoothing the iron ore supply curve, optimizing resource allocation and supply patterns, enhancing market resilience, and promoting fairer and more adequate market competition. This kind of “open source” effort is conducive to reducing operating costs and risk premiums in the entire industrial chain supply chain, and will ultimately benefit all steel companies.

Third, it has become a consensus to resolve the structural imbalance between upstream and downstream interests. Judging from objective rules, to create a healthy industrial development ecosystem, it is not a zero-sum game between upstream and downstream enterprises. The rational distribution of profits in all links of the industrial chain should be promoted through improving cooperation models to achieve mutual benefit and win-win situation. Specifically in the field of iron ore, only when downstream steel companies have a fair market position, equal bargaining power, and reasonable operating income can support stable and sustainable iron ore demand, and upstream mining companies can obtain long-term stable profits.

Finally, a more objective and transparent iron ore pricing mechanism was gradually established. For a long time, the pricing of the US dollar index was mostly based on the trading prices of a small number of international mining companies in the US dollar market. China has the world's largest port spot market, and its transaction price can more objectively and truly reflect the supply and demand situation in the market. Establishing an iron ore price index system denominated in RMB provides the market with an important price reference other than the US dollar index, which is conducive to improving the representation and transparency of price formation. Promoting the use of the RMB price index in international trade is conducive to curbing capital speculation, making prices better reflect changes in the supply and demand situation, and is an important improvement to the global iron ore pricing system.