Iron ore prices surge to record highs! Australia is making a killing!
Dec 04,2020
On November 27, the price index of 62% iron ore reached US\u0024130.95 per ton. This is more than 40% higher than the US\u002493.2 per ton at the beginning of the year, and more than 50% higher than the US\u002487 per ton last year, setting a six-year high.
On November 28, Qu Xiuli, vice chairman and secretary-general of the China Iron and Steel Association, said in a speech on the operating situation and development trend of China's steel industry that the iron ore price was acceptable in the first half of the year, but the difference from last year's price was very large after the third quarter. The iron ore price is now more than 40% higher than at the beginning of the year, while the steel price has only increased by 6%.
Qu Xiuli, Vice Chairman and Secretary-General of the China Iron and Steel Industry Association
Qu Xiuli said that from the industry's perspective, the current price of iron ore is as high as US\u0024130 per ton, which is very unreasonable. Under normal circumstances, it should adjust next year. Iron ore has futures, capital markets, foreign monopolies, and a large domestic demand, making it very difficult for prices to fall sharply. The current trend should be downward, a normal return.
However, the statement by the China Iron and Steel Association did not stop the rise of iron ore prices. Following the surge of the main iron ore contract to 919 on Monday, it soared again yesterday, reaching a high of 934.5, not only setting a new annual high but also a record high in nearly seven years. The price index of 62% iron ore continued its upward trend, rising to US\u0024132.85 per ton.
Daily K-line chart of the main iron ore contract in 2020
China is the world's largest consumer of iron ore, with more than 80% relying on imports. In 2019, opening up China's imported iron ore varieties to foreign investment may have been a big mistake, giving overseas capital the opportunity to manipulate prices through the futures market in conjunction with the spot market. Domestic and foreign major funds have used the convenience of introducing foreign investors into China's iron ore futures internationalization to continuously push up iron ore futures prices, leading to a surge in China's iron ore import prices. The continuous rise of iron ore has resulted in a large amount of Chinese capital flowing to the three major overseas mines, paying hundreds of billions of RMB more in a year.
The unprecedented epidemic and global economic downturn, with iron ore at more than US\u0024130, is a shame for China's finance and a sorrow for its industry.
Australian three major mines' profits are astonishing. Chinese buyers are also the "biggest gold masters" of Australian iron ore.
According to Australian media statistics, from 2019 to 2020, Australia's iron ore exports to China accounted for 87% of its total exports, with a transaction value reaching a record high of AU\u0024102 billion (approximately RMB 484.05 billion).
Australia is really having a great time, selling iron ore that costs less than US\u002420 to China for US\u0024133, and there's nothing we can do about it! The price of iron ore is getting higher and higher, and we have to keep sending them large sums of money!
In contrast, according to data released by the Ministry of Industry and Information Technology, in 2019, the sales revenue of member steel enterprises of the China Iron and Steel Association reached 4.27 trillion yuan, an increase of 10.1% year-on-year; the profit reached 188.994 billion yuan, a decrease of 30.9% year-on-year.
In other words, the profits of the three major Australian mines in 2019 were already equal to the sum of the profits of all Chinese steel companies in 2019. All of our country's steel mills are working for the three major Australian mines.
