The article discusses a significant rise in the price of iron ore, which has surged from $90 per ton at the start of September to $120 per ton, marking an increase of approximately 30%. In November alone, the import volume of iron ore surpassed 65 million tons, reaching a record high. This surge has put pressure on the steel industry, which is still recovering from recent losses and has only just begun to see profits again.
The news raises concerns about whether the "crazy stone" phenomenon—referring to extreme price volatility—might return. However, industry experts seem more relaxed. At the recent "My Steel" annual meeting, Zhang Changfu, the secretary-general of the China Iron and Steel Association, noted that China’s crude steel production this year is expected to reach 723 million tons, a 3% increase compared to last year. For next year, the growth rate is projected to slow down to around 2%, indicating that the low-growth trend is now established.
Despite this slowdown in steel production growth, iron ore mining has continued to expand. In the first three quarters of this year, Rio Tinto and BHP Billiton saw their iron ore output increase by 30% and 10%, respectively. Gao Bo, a senior researcher at "My Steel," stated that new mines are growing at a faster pace, with global new mine production expected to reach around 100 million tons next year. This could lead to a shift in the supply-demand balance, potentially resulting in oversupply.
Although the "crazy stone" scenario seems unlikely, challenges for the Chinese steel industry remain. One key issue is the increased volatility in iron ore prices. While steel prices have fallen by about 20% this year, iron ore prices have dropped by over 40%. This fluctuation makes cost control for steel plants extremely difficult.
"A single-direction price increase is manageable, but the rapid and unpredictable swings make procurement even more challenging," said a source from a steel company. Two figures involving 100 million tons highlight the dilemma faced by steel mills:
First, iron ore port inventories have decreased from a peak of 100 million tons to over 80 million tons currently. While lower inventory helps avoid losses during price drops, it also requires steel mills to be more agile in responding to market fluctuations.
Second, trading in iron ore derivatives has become more active, accelerating financialization. As of now, overseas iron ore swap transactions are close to 100 million tons, with 60% involving financial institutions. Some international investment banks have also entered the market with speculative funds. In contrast, domestic steel mills account for only 5% due to restrictions on overseas risk management.
In response to the risks posed by two-way price fluctuations, all stakeholders are actively seeking solutions. In the fourth quarter, the National Development and Reform Commission held a meeting and emphasized that with the increasing availability and diversification of iron ore supply, as well as the development of various pricing mechanisms, the conditions for promoting iron ore in China are gradually maturing. There is a growing consensus that it's time to move forward with these initiatives.
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