Vale agrees to negotiate price cuts with Chinese steel mills

The continued slump in the iron ore spot market has finally made the iron ore giants unable to survive. Recently, iron ore giant Brazil's Vale said it agreed to negotiate price cuts with Chinese steel mills on iron ore prices in the fourth quarter. According to industry speculation, the price cuts are about 10%-15%. However, Vale has previously decided to adjust its iron ore price in the fourth quarter from $175 to $160 per ton according to the current index price. Another major iron ore giant, BHP Billiton, also said it will provide Chinese steel mills with new pricing plans for iron ore. According to Martins, executive director of Vale, it is currently negotiating with Chinese steel mills, and may adopt measures based on actual average price to replace the quarterly pricing model adopted since April last year. In the third quarter of this year, the average price of iron ore was 175 US dollars per ton. As of last week, the iron ore spot market price has dropped to about 120 US dollars / ton.

When talking about the sharp drop in iron ore prices, Vale Martins believes that the relevant monetary tightening policies and the reduction of inventories by steel mills have led to the recent decline in iron ore prices in the international market.

According to the latest market report provided by the well-known steel spot trading platform “Xiben Shinkansen”, the price of imported spot iron ore has reached a new low in 15 months, and the domestic construction steel ton price has dropped the most monthly by 600 yuan. In some markets in the north and west, the monthly steel price fell by more than 600 yuan.

Market analysts believe that the reason for the accelerated decline in steel prices in October was the sharp drop in iron ore prices, the continued sluggish terminal demand, the further intensification of the European debt crisis and the tightening of market funds.

Yang Hua, an analyst at My Steel Network, believes that the sharp drop in iron ore prices is the trigger for the recent plunge in steel futures prices. It is reported that the current spot price of Indian fine ore has dropped from US$180 per ton before National Day to US$134 per ton, down nearly 30% in less than a month. The price of iron concentrate in Hebei Province also fell from 1870 yuan per ton to 1210 yuan, down 18%. Imported mines hit a new low in 15 months, and some domestic steel companies had to reduce or even suspend the purchase of iron ore due to losses.

After the steel industry continued to fall in September, it started a new round of slump in mid-October. The price of steel futures fell more than 1,000 yuan, a drop of over 20%. "Although the short-term rebound of steel futures is relatively strong, the market wait-and-see and pessimism have not changed." Yang Hua said.

According to the statistics of “My Steel Network”, as the price of steel fell, the price of iron ore gradually began to make up. By mid-October, spot iron ore prices have fallen to $150/ton, while the fourth-quarter agreement price is higher than $175/ton. The serious contrast between long-term price and spot price makes it difficult for steel mills to accept and accept such high cost.

It is the spot price of iron ore that has been falling, resulting in the decision of the three major mines of Vale to modify the previous pricing rules, that is, the fourth quarter contract reference 10,11,12 three months of real-time spot index, iron ore Approaching full spot pricing, the spot price of ore fell again. At the same time, the high inventory of the port, as well as the arrival of the mine, the market wait and see atmosphere, but also increased the ore power.   

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