Study On China’s Iron Ore Pricing Power

Iron ore is not only the most important raw material for iron and steel industry, but also the strategic resources for the healthy growth of economic. If the price of iron ore is increasing, it will leads to the increasing manufacturing cost of iron and steel industry and the manufacturing cost of the downstream industry which is closely related to, even may cause the cost-driven inflation.With the national economic development, the iron and steel industry is developing very fast followed by active demand of iron ore resources. The need of our iron and steel industry can’t be met because of the distribution disequilibrium, the shortage of supply and the lower grade of Chinese iron ore. So we have no choice but to depend mostly on import of foreign iron ore. At present, more than half of the upper grade iron ore are controlled by the big three suppliers, Vale do Rio Doce, BHP and Rio Tinto. So we should realize that the big three suppliers have powerful influence on the international price of iron ore, they could monopolize the market as seller very easily. However, it is so hard to understand that we lack the pricing power even as the biggest iron ore import country. Considering of the on-going international price of iron ore, our enterprises can’t stand more.At the beginning, this article analyses the supply and demand situation of iron ore in china and other countries and clarifying the monopoly of supply and the malconformation of demand. In the second part, this article focuses on the game between the suppliers, the demanders, the suppliers and demanders. In this way, we can find the reason why we lack the pricing power of iron ore. In the third part, we analyses the Long-term iron ore price agreement and the following pricing methods including Quarterly pricing, futures pricing and Spot pricing. By the comparison and analysis, we can find their merits and demerits. In the end, we propose the advice according to the Chinese pricing power problem. In the aspect of increasing ourselves strength, we need more exploitation of our mine and make the best of steel scrap, what’s more, we should promote the industrial concentration. Through these efforts, we can constitute an ultra large iron and steel enterprise and united together to against the foreign foe. In the aspect of disorganizing suppliers union, we should unite other demanders to form Community interest. In the aspect of adjusting strategy, we need to achieve vertical integration in the ways listed below. For example, investing foreign iron ore mine, establishing chinese iron ore strategic storage, developing futures market. Thus, chinese bargaining position can be improved and we can contend for the iron ore pricing power.