International Iron Ore's Fluctuating Price's Impact To The Steel Industry

Steel industry is the foundation of the national economy industries and iron ore is the basic raw material of it. According to the data, China's iron ore raw material costs about 40% in the total cost of steel. About 367 million tons iron ore were imported by China in 2007, so the price of the imported iron ore is very important as it affects the operational situation.Global iron ore's price is based on the discussion between three major producing parties and its purchasing parties. Started at the end of 2005, the three supply representatives, CVRD,BHP and Rio Tinto began their global iron ore negotiation with the demand-side representatives, European Arcelor, Nippon Steel and Chinese Baoshan steel company. World iron ore trade is divided into two parts: long-term agreements and spot transactions. The former is determined through negotiation while the latter is determined through the consultation between the two sides established. Due to historical reasons, long-term agreement is the mainstream of the price of imported mineral ore.The international iron ore market's price changes significantly from 2003. The long-term iron ore contract CIF price rose 18.6 percent in 2004 and then soared 71.5% in 2005. In 2006, the final outcome of the negotiations is still rising up to 19%. Baosteel confirmed that it had reached an agreement with CVRD on international iron ore price of 2008. Baosteel did not break the practice of the past 28 years, still follow the starting price. At this point, the long-term iron ore contract price has been rising for six consecutive years. Therefore, this paper analyzed the international long-term agreement price's influence on China's iron and steel enterprises which includes following main conclusions:Firstly, Because of the impact of sea freight, international iron ore's CIF price changing rate do not match the price changing rate of China's iron and steel enterprises and even contrary to the trend of the latter.Secondly, At present, China's iron ore spot price is at a historical high point, even plus the freight, the international three giant still have a significant price advantage.At the same time, the paper also analysis how China's iron and steel enterprises deal with the fierce international iron ore market price changes, as well as how to obtain the commodity pricing power, the paper targets to make a few constructive measures and recommendations.Firstly Coordination and management. We should emphasize the strategy as well as rational distribution on the process of importing iron ore resources.Secondly, China's iron and steel enterprises should fully utilize the resources domestic and abroad. Develop low-grade mining technology and make full use of domestic depleted ore, increase international investment of the exploitation.Thirdly, Iron and steel industry must abandon the extensive development of the original model and take intensive use of resources, make great efforts to promote the adjustment and optimization of the structure.