Research On Iron Ore Pricing Mechanism

As a raw material of steel production, iron ore is very important for a country’s industry and economic development, especially for China. Because of the rapidly developing of China’s economy, the iron ore consumption is being in the high growth period and highly dependent on overseas iron ore resources. It is critical for stable and reliable supply of iron ore, and the reasonable price of iron ore. So it’s even important to study price forming mechanism and pricing mechanism of iron ore market. Especially in recent years experienced significant changes in the international iron ore pricing mechanism, there are a far-reaching impact regardless of the iron ore industry or the steel industry.Analysis of iron ore pricing mechanism how to play a role in market and market participants, and study different possible outcome caused by different pricing mechanisms, it is the basic goal of this paper.In different iron ore pricing mechanism, how is price and quantity to be arranged and decided, how is the market be divided, and how is the "rent" which based on transaction cost be distribution between two industry. Only in-depth analysis of the above content, China Iron and steel industry and its management mechanism could makes it possible to manage iron ore pricing mechanism effectively and improved it. Based on the philosophy of pragmatism, this paper using the basic theory of economics to builds different models under different market pricing mechanism, demonstrated the profound influence between upstream and downstream industry of iron ore, which due to the change of pricing mechanism. Finally provides a theoretical basis for the selection and improvement of the iron ore pricing mechanism.The first chapter introduced the research goal, this research ideas and research methods. The second chapter reviewed the related theory of this thesis’s theme and the present situation of research on this subject at domestic and foreign, and summarized the significance and shortcomings of those theories and research for this article research.The third chapter introduces the benchmark pricing system, index pricing mechanism, spot transactions and swaps pricing mechanism concept and those pricing mechanism’s historical development process, operational mechanism and the contains and so on. According to the basic price mechanism of benchmark pricing system and index pricing mechanism, establishing the economic model, those model point out the most important characteristics of those pricing mechanism. The third chapter also introduced the history of iron ore pricing mechanism, from the benchmark pricing system development, mature, collapse, and replaced by index pricing mechanism, it laid a foundation for the analysis and follow-up study.The fourth chapter clearly shows that iron ore has obvious characteristics of oligopoly in the international shipping market by collected iron ore resources date and market date. Through the iron ore pricing mechanism, the market structure is extremely conducive to mining oligarchs to use its "market forces" to reap more benefits. The fourth chapter describes the specific mechanism and the course of development of the long agreement price mechanism, focusing on the results, if mining oligarchs conspiracy and use its monopoly power by means of long agreement price mechanism. As an example, this paper use of the regional markets established seller oligopoly model in the case of growing demand for iron ore, and measurement and calculation of every model parameter. The results demonstrate a high degree of consistency of the mine oligopolistic market behavior and the model results.In the fifth chapter, elaborated the demand shock from China, and the impact on the iron ore pricing mechanism of demand shocks. In this kind market background, this paper demonstrates the different influence of different regions and different kind steel enterprises by benchmark pricing system and index pricing mechanism. For the unsuccessful reform vision for a long iron ore price agreement mechanism that is to establish independent long agreement price mechanism of China. In the fifth chapter of this paper demonstrated the demand for iron ore in China is still in a period of rapid growth, China’s steel industry will be pushed to the disadvantage by this change idea, made it possible for mining oligarchs discriminatory pricing. Through the establishment of the iron ore market segmentation model to prove that long agreement price mechanism have a protective effect for China’s steel industry in the period of the needing of iron ore rapid growing, and pointing out that a reasonable opportunity to develop independent price. This conclusion is also applicable to the index pricing mechanism of iron ore market. This chapter also discussed the influence iron ore trading costs in index pricing mechanism, and a new challenge in internal management to the iron enterprise and steel enterprise which brought by the change of pricing mechanism. In the last section of this chapter, this article points out that the price mechanism has immanent instability. While the index pricing mechanism amplifying Market Volatility.From the industry perspective the sixth chapter further analyzed the benchmark pricing system and the index pricing mechanism, study on the distribution of interests between the upstream and downstream industry in different pricing mechanism. According to the analysis of the iron ore market in fourth chapter, two kind of pricing mechanism model are established under the monopoly market. The model of seller monopoly of iron ore index pricing show that with the index pricing model the monopoly of iron ore enterprises will be able to significantly improve the market price by dropped to less production, and get beyond the monopoly profits during a certain period of time. Therefore, in the oligopolistic structure of the iron ore market, competition between mining enterprises are further weaken under the index pricing mechanism, and more convenient in collusion and manipulation. Combined with historical pricing data this chapter also researched negotiating pricing mechanism, it shows that although mining oligarch monopoly is successful in control the number of yield, but the price did not do this, for a long time the long association price is lower than the spot price, it proved that there are some game space for steel enterprises given by the long agreement price mechanism.Finally, based on the discovery and demonstration results of this study, The article puts forward several policy recommendations and the design of the pricing mechanism. And from the perspective of business management, to provide an alternative or centralized purchasing plan for Chinese steel enterprises, to enhance the competitiveness of steel enterprise.