Chinese and foreign iron ore spot platform compete for new high ground of iron ore

The new high point of iron ore competes for the wrestling around the iron ore spot trading platform, which is the pre-arrangement of the Chinese and foreign parties before the advent of the iron ore spot trading era. Who controls the right to release data in the spot market, who will master the future pricing initiative. The iron ore long agreement price mechanism has been replaced by the third-party index pricing mechanism for nearly two years, and domestic steel companies are still suffering from high mining prices. Nowadays, as the era of iron ore all-in-one spot trading is approaching, the Chinese steel industry is trying to unite and occupy the commanding height ahead of schedule. On the morning of January 16, the launching ceremony of the China Iron Ore Spot Trading Platform was held on the 18th floor of the Beijing Hotel. This platform, initiated by the China Iron and Steel Industry Association (hereinafter referred to as China Steel Association), the Minmetals Chemicals Import and Export Chamber of Commerce (hereinafter referred to as the Minmetals Chamber of Commerce), and the Beijing International Mining Rights Exchange (hereinafter referred to as the North Mine), has now received domestic Response from 26 large steel mills and traders. Baosteel, Anshan Iron and Steel, Wuhan Iron and Steel, Shougang, Sinosteel, Hebei Iron and Steel (3.01, 0.00, 0.00%), China Minerals Co., Ltd., etc. are all listed. Wang Xiaoqi, vice president of China Steel Association, said that the new platform will play the role of market price discovery, form a credible iron ore price formation mechanism, reduce artificial malicious speculation, and promote the formation of fair, just, reasonable and transparent international bulk mineral products. price setting policy. This is after the China Iron and Steel Association issued the "China Iron Ore Price Index" in September 2011, the Chinese steel industry once again took the initiative to attack, and hoped to seek more influence in the iron ore trading market that is close to the full spot. It is not only China Steel Association that has the idea of ​​creating an iron ore spot platform. The office is located in Singapore and London's globalORE (global iron ore spot trading platform) has been lobbying in China, and plans to officially launch the platform at the end of last year, but so far no results. Layout of the spot era One morning in late November 2011, a delegation from China came to the 23rd floor of Hitachi Building, 16 Gory Pier, Singapore. The delegation was led by Wang Xiaoqi, vice president of China Steel Association. The members included Wang Chunsheng, deputy secretary-general of China Steel Association, Wang Yingsheng, director of market research department, and representatives of steel mills and traders such as Baosteel, Hegang, Shougang and Maanshan Iron and Steel. Wang Xiaoqi, who was born in the Ministry of Metallurgy, was the director of the Planning and Development Bureau of the State-owned Assets Supervision and Administration Commission. In addition to the position of the China Iron and Steel Association, Wang Chunsheng was the assistant to the general manager of Shougang International Trade Engineering Co., Ltd., which is responsible for ore imports. The representatives of the enterprises are the heads of the ore departments and traders of major steel mills. The annual import volume of iron ore imports is nearly 200 million tons. Despite this, the delegation of more than ten people is very low-key. China imported 112.4 billion US dollars of iron ore last year. Due to the huge iron ore import interests of the country, Wang Xiaoqi asked the members to strictly keep this confidential. The Caijing reporter asked for confirmation from a number of parties, and they were all rejected by the other party on the grounds of "incident sensitivity." According to informed sources, the delegation's destination is globalORE's office in Singapore. globalORE seeks to provide an online trading platform for steel mills, miners and traders to change the traditional iron ore spot trading model. globalORE has deep roots with globalCOAL (Global Coal Electronic Trading Platform), which was founded in 2001 by BHP Billiton, Rio Tinto, Anglo American, Glencore, Italy. The National Electric Company (Enel), Japan Power Development Corporation (Jpower), Ruhr Gas Company (E.ON) and Simpson Shipping Consulting (SSY) jointly established. Through ten years of development, globalCOAL has become the world's leading coal electronic trading platform, with 122 company members, with an annual volume of approximately 80 million tons of thermal coal. The platform has provided anonymous trading information and formed Global Coal on this basis. Price Index (GlobalCOAL NEWC INDEX). Eoghan Cunningham, former head of market operations at EDF Energy Plc, has been CEO of globalCOAL since June 2005. He witnessed the company's growth in the coal field and ambitiously copied this model to the iron ore spot trade. In March 2010, Cunningham announced the launch of the iron ore spot platform project, saying it plans to build a new iron ore standardization contract trading market based on the Western Australia closing price (FOB) and launch the relevant price index. At that time, he also served as the newly established CEO of globalORE. “I must emphasize that the two companies operate separately and independently.” Stephanie Mercier, responsible for marketing and communication of globalCOAL, told Caijing. Cunningham’s plan is supported by BHP Billiton, one of the world’s three largest iron ore giants. As the main driver of the iron ore trade spot, BHP Billiton, headed by Marius Kloppers, is also the main force driving the rupture of the iron ore long association negotiation mechanism for decades and the generation of indexed pricing. However, since the operation of the index pricing mechanism, controversy has continued. BHP Billiton and other miners hope to use the Cunningham plan to move the ore spot trade online, thus making up for the shortcomings of the existing index system. According to the plan, the globalORE shareholder is designed to account for 40% of the steel mills and miners, and the rest are traders. The sponsor believes that such a framework can take care of the interests of buyers and sellers and persuade Chinese steel mills to join. In the first half of 2010, Cunningham announced that the company has launched a standardized Iron Ore Trading Agreement (SIOTA) for the iron ore spot market, which will be available in the third quarter of the year. However, at that time, the Platts index pricing was widespread, and the voice of globalORE was not widely responded in the industry, and the platform was not on schedule. In the following year, the industry’s opposition to the Platts Index has increased, and GlobalORE has realized that the time is coming. Since 2011, globalORE staff have traveled more frequently between China and Singapore. Their work is mainly to lobby China's major steel mills and visit traders. The previous large-scale meeting of the domestic steel industry also has employees of the company. The airline membership card of the globalCOAL employee completed an upgrade in just three months, and the upgrade required mileage required to reach 25,000 miles (approximately 40,000 kilometers) in 12 months. This scenario is quite similar to the promotion of the Platts Index previously supported by BHP Billiton in China. The difference is that the negotiation mechanism of the long-term association is in jeopardy. The China Steel Association, which represents the Chinese steel industry, has always been tough to defend the long association mechanism. The Rizhao International Iron Ore Trading Center was temporarily stopped by the China Steel Association, which was the epitome of tension at that time. After the re-election of the China Steel Association in early 2011, some insiders said that it is obvious that the new team is “open-minded” and more pragmatic. In November, the head of the major steel mills organized by China Steel Association flew to Singapore to inspect the spot trading platform. In addition to globalORE, the delegation also welcomed Michiel Hovers, vice president of BHP Billiton iron ore marketing, and Alan Smith, Rio Tinto's Asia-Pacific iron ore marketing representative. Representatives of miners, steel mills, traders, third-party institutions, and associations negotiated on the feasibility of the spot platform. GlobalORE said it supports the development of a more transparent iron ore spot trading market and believes that platforms based on spot trading can increase transparency. “The establishment of such a platform in Singapore in the coming months will attract market participants from different regions as much as possible.” But the biggest difference between China and foreign countries is that China prefers to set up this platform in China. Two platforms wrestling "China is the biggest market, so it is necessary and reasonable to establish a spot platform in China." Wang Xiaoqi said. According to data from the General Administration of Customs, China imported 690 million tons of iron ore last year, an increase of 10.9%, and import prices rose by 40.9%. With the increasing production and import channels of China's overseas equity mines and the growth of domestic mines in recent years, China's iron ore dependence is declining. In 2009, China's iron ore dependence on foreign countries exceeded 67%, and by 2010 it fell to 63%, and in 2011 it fell to 60%. However, the risk of default in the agreement between the supply and demand sides is also increasing, and the proportion of spot in imported iron ore has increased significantly, exceeding 70%. This means that the pricing mechanism based on the spot market becomes the key to the future interest game. After the delegation returned to China, the China Iron and Steel Association organized two meetings of the president's office, and also communicated with the Minmetals Chamber of Commerce on several occasions to discuss the domestic spot trading platform. At the same time, since September 2010, the North Mine Institute, which started to research the spot trading platform, has announced that it has basically completed the construction of the trading platform. According to the North Mines Institute, it has communicated with the National Bureau of Statistics, the China Iron and Steel Association, the Minmetals Chamber of Commerce, the Customs, and the Development Research Center of the State Council. Dong Chaobin, president of the North Mines Institute, revealed that “these communication work has achieved certain results.” Both the Chinese and foreign iron ore spot platforms in preparation have been on the line. Informed sources told the Caijing reporter that both parties will use the end of last year as a platform to launch the time, globalORE is waiting for Chinese companies to express their views, while Chinese steel mills, traders and North Mines are waiting for opinions from the association and the regulatory authorities. North Mine got good news on the second working day of the New Year. On January 5, at the annual council of China Steel Association, Zhu Jimin (microblogging), president of the association and chairman of Shougang Corporation, expressed his position on behalf of the association. Enterprises can try to understand globalORE. "But don't join easily before you figure it out." . "At present, they are willing to contact globalORE no problem, but as the initiator, before the platform is built, don't sign an agreement with the other party." Wang Xiaoqi said. After 11 days, the China Iron Ore Spot Trading Platform was launched. GlobalORE said to the Caijing reporter: "We welcome the news that China Steel Association announced the development of a Chinese iron ore trading platform." According to the North Mine, the varieties of platform trading are mainly 63.5% of the market's mainstream fines. 62% of the ore, 65% of the pellets, 62% of the ore, divided into in-situ spot and port spot. The spot in transit is known as the “floating cargo” in the industry, that is, the ore that has not yet arrived in Hong Kong. Under the general spot trade, the miners will send a notice to potential buyers via e-mail, bidding for the unloaded or floating goods in the middle of the shipping, and the buyer bids according to the goods inspection form and the market price. After winning the bid, the two parties signed a contract by fax, issued a letter of credit, and performed customs clearance inspection procedures. The limitation of this method is that the market information is asymmetrical and it is difficult to find the ore price in time. Through the spot trading platform, both buyers and sellers can find the anonymous inquiry and offer issued by the member companies in real time, but the transaction is not arbitrary. "Only the platform member companies that have previously signed agreements with each other can obtain the information of the information publishers, thus facilitating the transaction." Liang Ruodong, vice president of the North Mines, explained. The contract-making enterprises form a multi-buy-to-multiple-sell relationship, and it is necessary to strictly fulfill the online transaction price as the actual transaction price commitment, so as to avoid the risk of false prices. "If we find a malicious default, we will remove the business from the list of members." Wang Xiaoqi said. The biggest difference between the platform launched by the North Mine and the globalORE is the use of domestic conditions to establish a spot trading method for the port. This market is quite large. As of the Spring Festival, iron ore stocks in China's major ports are close to 100 million tons. In the port spot mode, when the buyer and the seller conduct the transaction, the goods are confirmed by the freight forwarder and the goods are frozen. At the same time, the bank confirms the deposit and freezes the funds, and on this basis, the goods are released and loaned, and the transaction is guaranteed to proceed smoothly within a specified time. The market is still waiting to see the running Platts pricing mechanism, which is a sample of telephone inquiry by the staff. The scientific and rationality of this approach has been questioned by steel mills and traders, but most of the iron ore sold by the three major miners to China is used as a price benchmark. Dong Chaobin, president of the North Mining Institute, said that after the iron ore spot platform develops to a certain extent, it will form an iron ore index based on spot trading. “We hope that the price index generated based on the iron ore spot trading platform of the North Mine can better reflect the real situation of the market.” GlobalORE CEO Cunningham also believes that by establishing a price benchmark, it is connected with it. The price index is "extremely important." Zhang Jiabin, deputy manager of the United Metals Ore Division, believes that the spot platform will be a disintegrating threat to the current Platts pricing system. “The biggest controversy in the market before Platts was Platts' sampling method. The establishment of the spot platform just made up for this deficiency of the existing system.” BHP Billiton believes that the spot trading platform is a key step to further improve transparency. However, Francis Browne, editor-in-chief of Platts Metals, stressed that Platts does not have a “transaction system” but can publish the valuation information at the end of the trading day, including the inquiry price, through the MOC closing price evaluation process. , offer price, transaction, etc. "Now we have begun to announce the buyers and sellers of iron ore spot trading, and have been able to see the names of more than 20 companies and the trading activities involved in the evaluation of the Platts iron ore market," he said. Wang Xiaoqi said that the spot platform can reflect the results of real-time transactions. In the future, China Steel Association will further obtain information from the spot platform and improve the existing index system. In this regard, Rio Tinto reiterated that the iron ore price index must be credible, transparent, and its liquidity is sufficient and sustainable. For several indexes in the industry that are running or preparing, the company has continued to focus on its development process. FMG, Australia's third-largest iron ore producer, said it supports any transparent index and pricing mechanism that fully reflects market supply and demand. The spot platform is in the forefront of the evolution of the ore pricing mechanism. Who controls the right to release data in the spot market, who will master the future pricing initiative.

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