Liuzhou, Guangxi, 17 Dec (ZXS) -- Near the end of the year, iron ore prices have once again risen sharply.

Li Xinchuang, secretary of the party committee and chief engineer of the Metallurgical Industry Planning and Research Institute, pointed out on the 17th at the "Fourth Member Congress of the Metallurgical Industry Energy Conservation Professional Committee of the China Energy Conservation Association" that China's iron ore price index CIOPI (62% grade) has risen from a low of $79.5 per ton after the Spring Festival to about $155 per ton recently, an increase of more than 95%, hitting an eight-year high. 

This is not the first time iron ore prices have changed during the year. In mid-September, the price of imported iron ore (62% grade) from China climbed sharply to a six-year high of $128.9 per tonne, a six-year high.

Li Xinchuang revealed that a ton of iron ore, mined from Brazil or Australia and transported to China, costs only about $30-$40. This means that a foreign mine can make about $120 gross selling a ton of iron ore to a Chinese company.

Excess profits have significantly boosted the performance of mining giants. Brazilian mining giant Vale's third-quarter profit rose sharply to $6.224 billion, the highest since the fourth quarter of 2013, driven by soaring iron ore prices. But the sharp rise in iron ore prices has put pressure on China's already unprofitable steel industry.

Why have iron ore prices changed? According to expert analysis, there are three main reasons.

First, supply and demand are tight.

Strong demand from China is the basis for rising iron ore prices, and the Chinese economy, which has recovered from the epidemic, has seen a surge in demand for steel products, while China relies on imports for more than 80%. Li Xinchuang pointed out that from January to November, China's pig iron production increased by 4.2% year-on-year; Crude steel production increased by 5.5% year-on-year, and annual steel production will reach 1.05 billion tons.

On December 2, Vale announced that it lowered its 2020 iron ore production forecast to 3-305 million tons from 310 million tons previously. Hu Fugang, head of iron ore varieties at Lange Steel Network, believes that this production expectation is lower than the market's expectations for its production increase, so it has triggered a wave of futures rally.

Second, the unreasonable pricing mechanism makes Chinese steel companies lack the right to speak on pricing.

Wang Yingsheng, deputy secretary-general of the China Iron and Steel Association, said that the long-term price mechanism used by iron ore has made downstream steel companies lack bargaining power. The supply of iron ore, what varieties to sell, and at what price are mainly determined by the mine.

Third, financial speculation fueled the waves.

Wang Yingsheng said that almost all steel products can be traded in the futures market, so the speculation in the financial market will also play a role in promoting the price of iron ore.

In response to iron ore prices, the Dalian Commodity Exchange recently issued a risk warning letter to remind all parties to strengthen risk control.

For steel companies that have been seriously affected in the short term, Li Xinchuangan proposed that in the short term, steel companies should appropriately control the excessive growth of steel production to calm the blind demand for iron ore. In the long run, strategically, China should establish a diversified and long-term, stable and efficient iron ore guarantee system. In addition to iron ore, he said that scrap is also an important raw material for steel production, and suggested increasing the collection and supply of scrap.