Iron and steel market appears to supply more than demand iron ore price cut into inevitable

As the financial crisis further spreads, the iron ore market has a negative growth in demand, and the gap between supply and demand has widened, leading to a sharp drop in prices. At this time, iron ore negotiations, regardless of the domestic and international environment, are beneficial to China's steel companies.
The financial turmoil has blown the era of iron ore's windfall profits, and drastic price cuts have become an inevitable choice.
“The price of iron ore should be the same as steel prices and drop to the level of 1994.” On December 8, the Secretary-General of the China Iron and Steel Association, Shan Shanghua, told the media that China Iron and Steel Association is demanding a sharp drop in iron ore prices. According to news, China may request price reductions of up to 82%.
“The iron ore and shipping market will bid farewell to the era of huge profits, but the iron ore industry still has better profitability due to the influence of international monopolies. By the end of this year, iron ore will enter a period of relatively stable prices.” December 6, In the “2009 China Steel Market Outlook and the “My Steel” Network Annual Meeting”, Zou Jian, President of the China Metallurgical Mine Enterprise Association, also gave the above judgment.
China requires price cuts
“The iron ore long-term agreement price will definitely fall next year, and eventually it will fall. No one can answer it well. However, with less decline, China will certainly not accept it,” said Zou Jian. As the financial crisis further spreads, the iron ore market has a negative growth in demand, and the gap between supply and demand has widened, leading to a sharp drop in prices.
In the past, the annual iron ore negotiations were already underway. However, due to the global financial turmoil, the entire steel industry was hit and the negotiations were delayed. A few days ago, it was reported that Australian iron ore producers had officially requested negotiations with Baosteel. It seems that the new iron ore negotiations will start soon.
However, the negotiation of iron ore at this time will not only benefit the domestic steel industry, but also the domestic and foreign environment.
Banks in Australia and New Zealand predicted that Chinese iron and steel companies are likely to demand a 50% or more decline in iron ore prices.
Recently, there was even more news that Chinese steel companies tried to change the annual price of iron ore from April to April and implement it from January. When the price of coltan is relatively low, China’s iron and steel enterprises should strive for a more favorable negotiation position. . Shan Shanghua said that in the new year's iron ore negotiations, China will insist on FOB prices, oppose the spot index pricing, and further regulate China's iron ore import market.
Iron ore profits end
“At present, there has been a situation in China where iron ore supply is significantly greater than demand.” Zou Jian revealed.
At present, domestic iron ore inventories have increased substantially, with an increase in port inventories of approximately 36 million tons, and an increase in iron ore stocks outside the ports by approximately 28 million tons. With the increase in inventory, domestic demand for iron ore has not grown significantly. It can be expected that the decline in the real estate, automotive, and home appliances markets will further squeeze the profitability of the Chinese steel industry. For a period of time in the future, Chinese steel companies will take the initiative to limit production and insure prices and accelerate mergers and acquisitions.
Zou Jian analyzed the current development of the iron ore industry. He pointed out that since 2004, China's iron ore production has maintained a high growth rate, with the highest increase in 2006 reaching 37.99%. From January to September 2008, domestic iron ore production remained at a relatively high growth rate, with cumulative production of 586 million tons, an increase of 19.4%. In addition to the high growth in domestic production, domestic companies have conducted a series of overseas iron ore mining projects with foreign iron ore producers, which has also greatly increased the supply capacity of iron ore.
However, as supply capacity continues to increase, iron ore sales are facing more and more difficult conditions with the advent of the financial crisis.
Steel industry is facing severe challenges
“China's steel industry has experienced a sharp drop in production since the third quarter, prices have fallen sharply, and the number of loss-making enterprises has increased dramatically. The industry is facing severe challenges.” Qi Xiangdong, deputy secretary-general of the China Iron and Steel Association, disclosed that from January to October this year, 71 large and medium-sized steel companies in China realized Profit decreased by 0.93% year-on-year, of which, August profit decreased by 19.44% year-on-year, 72.9% in September, and a direct loss of 5.835 billion yuan in October. The steel industry seems to have fallen to the bottom.
"When did you reach the bottom, nobody knew." When Xu Lejiang, chairman of Baosteel Group, spoke about the prospects of China's steel industry at the "2008 Global Management Forum" sponsored by China Europe International Business School, he said without hesitation. Xu Lejiang further explained that this year, domestic consumption of 400 million tons of steel, but China has 600 million tons of annual steel production capacity, the contradiction between supply and demand is very prominent.
In addition to Baosteel, Yang Siming, chairman of Nanjing Iron & Steel Company, is also not comfortable with the decline in steel prices caused by changes in supply and demand. He said: "The current steel price fluctuations are not the same as in the past. In the past, the end-user demand has not shrunk. This time, the end-users have changed. Some companies have closed the door and some have reduced their pay and staff." Faced with the predicament, Nanjing Iron & Steel Had to cut production, the maximum output was reduced by 40%.
However, Qi Xiangdong also expressed his optimism: “The state has already taken a number of measures to stimulate the economy. Everyone must have confidence in the steel industry. The steel industry in the fourth quarter of this year is more difficult than the first quarter of next year, but it is expected that there will be signs of improvement in the second quarter. ."

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