Australia's New Deal or push up the price of iron ore, China's steel companies are under pressure

If there is no accident, on July 1 this year, Australian mining companies will be levied by the government with a 30% mineral resource tax and a carbon tax of $23 per tonne. Although this is to save energy and address climate change, as the world's largest exporter of iron ore, Australia’s move will undoubtedly further push up the price of iron ore, which in turn will increase the procurement costs of Chinese steel companies.

Prior to this, India, Vietnam and other countries have raised their iron ore export tariffs. After the annual negotiations on iron ore prices "end of life," the ever-increasing trade protectionism policy is "rough and turbulent."

In an interview with the reporter, Ji Guangjie, manager of Jinan Iron and Steel Sales Company, said that downstream demand, high costs, and overcapacity have caused domestic steel companies to agonize. The taxation of iron ore will no doubt erode the profits of Chinese steel companies. At present, domestic steel companies are undergoing a painful transition.

"My steel" network research center associate researcher Ni Wei told reporters that although the proportion of the current agreement has been greatly reduced, and the favorable factors for China are gradually increasing, but the monopoly companies including the three major miners still control The iron ore supply initiative, China's steel industry is still facing severe challenges.

Double tax concealment is stronger

According to Secretary Guangjie, the status of the downstream auto industry of steel enterprises is slightly better, while the machinery manufacturing, shipbuilding and other industries are in poor condition. The loss of domestic first-tier steel companies is relatively large. Specific to Jinan Iron and Steel, its main business income has dropped significantly, and is being transformed into other businesses.

According to the latest statistics from the China Iron and Steel Association, 8 out of 77 major large and medium-sized steel enterprises suffered losses last year, and Angang also incurred a huge loss of 2.15 billion yuan.

"If these two taxes are levied, the price of iron ore will inevitably increase, which will affect China's steel industry," said Ni Kuang.

Yan Ping, a senior analyst in the steel industry, said: “Last year, China imported more than 200 million tons of iron ore from Australia, which accounted for 43% of the total annual imports. If it is a tariff, we can also use WTO rules to maintain it. Its own rights and interests, but if tax is collected from the production process, a price at home and abroad, we can only passively accept it, so it has greater impact on China and is more concealed."

Yan Ping also believes that different from the initial intentions of many emerging countries in developing their own steel industry, Australia’s levy of the above two taxes is hopeful to obtain a share of profits from lucrative mining companies.

According to Yan Haishan, director of the information office of Tangshan Guofeng Iron & Steel Co., Ltd., the current domestic steel companies are not profitable, iron ore prices are declining, and whether the above taxation will raise the price is still uncertain.

Chen Kai, an iron ore analyst at Business Club, said that China’s import of iron ore is expected to reach nearly 1 billion tons this year. According to the average agreement price of US$150/ton last year, the mineral resources tax will increase by about US$20 per ton. One billion tons is 20 billion US dollars, plus the carbon tax, the incremental cost to our country is obviously not a small number.

"Because of the preponderance of resources already occupied, companies that will be developed later will face greater cost pressures. If they are heavily taxed, this means that the investment attraction of iron ore projects will decline, and this will inevitably lead to a reduction in the supply of Australian iron ore and aggravate it. Market supply and demand contradiction." Yan Ping said.

Ni Hao believes that relying on the monopoly position in the iron ore market, Rio Tinto and BHP Billiton and other Australian mining companies once the price increases will inevitably lead other companies to follow suit, and thus easily passed on to domestic tax costs, and the biggest victims are China.

This year, the iron ore market will be basically balanced

This reporter learned that following India’s increase in iron ore export tariffs, the Vietnamese government has also raised the iron ore export tariff from 30% to 40% from the 7th of this month. Although China’s imports from Vietnam are small, it takes into account the development needs of emerging countries, which also indicates that the growth trend of China’s access to ores from neighboring countries will be curbed in the next few years.

Chen Kai said that due to a wave of rising prices in the steel market after the Spring Festival, the ore price rose slightly. In his view, due to the recent lack of terminal demand and steel companies have not yet fully started, the port inventory is high, the market outlook iron ore prices will rise, but not much.

"From a variety of factors, the inflection point of the iron ore market is getting closer and closer." Ni Kuang said that although India, Australia, and other countries introduced a series of policies that are unfavorable to China's steel companies, the scope of recent mine plans to increase production is relatively large. To a certain extent, it can ease the adverse effects it brings.

According to Ni Kuang, China imported 48 iron ore source countries in 2010, and it has increased to 67 in 2011. Although the grades and quality of iron ore in these newly exploited importing countries cannot be compared with those of Australia, Brazil, India, etc., it is expected that this diversified import trend will continue this year, and the supply will also increase. The expected increase is About 20 million tons.

In addition, although the expansion plans for Australia and Brazil have slowed down, the supply of iron ore in Australia and Brazil will still increase this year, and it is estimated that the increase will reach 50 million tons, of which at least 30 million tons will be exported to China.

However, Ni Hao reminded that although supply of iron ore will increase this year, demand will continue to grow. Global iron ore demand is expected to increase by 75 million tons and supply will increase by 70 million tons. The overall supply will be slightly greater than demand. From the price point of view, it is expected that the price of iron ore (62% grade) will run in the range of US$110/ton to US$160/ton this year, and the average price will be around US$140/ton. “It’s not too early to be optimistic. The three major mines It is entirely possible for enterprises to control the market by adjusting their own output in order to solve the adverse effects of supply exceeding demand."