Qiu Lin: Why is the blood of Chinese steel companies squeezed out by the mining giants?

Chinese steel companies have not changed the fate of working for the three major mining giants of BHP Billiton, Rio Tinto and Brazil’s Vale. According to a meeting held recently by the China Iron and Steel Association, due to the sharp increase in iron ore prices in the international market, the iron ore imports from the Chinese steel industry in the first half of 2011 accounted for US$16.17 billion. According to the calculation of the average exchange rate against the U.S. dollar in the first half of the year, China will increase the cost of the steel industry by up to RMB 104.11 billion.

Over the years, the three major mining giants installed a blood-sweeping machine on Chinese steel companies, basically draining Chinese companies' blood. From January 2010, 20%! 40%! 90%! 100%! Crazy rising iron ore prices continue to challenge the Chinese steel companies to withstand the bottom line. Based on China's strong market demand for iron ore, the three major mining giants are asking prices. In early 2010, China’s expected price increase for iron ore was 20%, and then it had to accept the 40% price increase request, and by the end of last year it would have to face 100% price increase.

Comparing with the results of the Chinese companies that have been drained by the mining giants, the annual reports of the three major mining giants have been rising all the way. Vale's operating income in 2010 was 46.5 billion U.S. dollars, an increase of 94.2% over the previous year, and a net profit of 17.3 billion U.S. dollars. Among the company’s main products, sales of iron ore increased by 11% year-on-year to 255 million tons last year, and the price increase was surprisingly doubling. The other two mining giants are no exception. Rio Tinto’s 2010 net profit was US$14.3 billion, up 122% year-on-year, and BHP Billiton’s net profit was US$17 billion. The total profit of the three mining companies in 2010 was as high as 48.6 billion U.S. dollars.

In 2010, although the profits of Chinese steel companies achieved 89.7 billion ***, their total profit was less than that of Rio Tinto. The company achieved a profit of 14.3 billion U.S. dollars (about 95.5 billion U.S. dollars) last year. In fact, comparisons between Chinese companies and the three major mining giants have made the leaders of the Chinese steel industry even more glaring: Look at the mining giant's data jealousy and see the slight profit margins of their own companies blush.

The famous economist Lang Xianping pointed out that “the current BHP Billiton is not different from the East India Company that originally sold the **. It is everywhere and holds an incredible amount of resources on the planet. It is not only industrial capital, but also invisible. The hand of financial capital." Lang Xianping's words came up. Chinese iron and steel companies are like iron ore, and companies cannot live without it. To buy, it must be a high price. As the price of imported iron ore continues to rise, Chinese steel companies are in a state of low efficiency.

The unfavorable state of Chinese companies continues. According to customs statistics, the average cif price of imported iron ore in the first half of 2011 was US$160.89 per ton, which was the highest level in history, up by US$47.92 per ton or 42.41% from the same period last year. In the first half of the year, 33.25 million tons of iron ore was imported, an increase of 25.18 million tons year-on-year. The "big blood machine" of the three major mining giants not only easily plundered the profits that originally belonged to the Chinese steel industry, but also made the Chinese steel industry extremely anemic.

Why can China, which holds more than 400 million tons of iron ore purchases, not be able to obtain a satisfactory "China price"? To answer this question, we should start from more than 10 years ago. In the past, international iron ore was also the buyer's market. In the 1980s, when Rio Tinto and BHP Billiton, the eager buyer, came to the door and requested to develop the Australian mine together with Chinese companies, it was rejected by the Chinese side. As such, Chinese steel companies missed a good opportunity.

However, when China's iron and steel production increased geometrically and demand for iron ore rocketed, the giants of the mining industry began to hold two long legs from Chinese steel companies and continue to ask Chinese companies to ask for prices. This is also a result of the purchase of more than 400 million tons of iron ore per year. It has never been able to obtain a satisfactory "price". As of this year, China has participated in more than 10 negotiations on iron ore, and in the first few years there was still some gains. However, since the beginning of the new century, Chinese iron and steel companies have been repeatedly involved in iron ore negotiations and have failed to achieve "eight consecutive defeats."

China currently accounts for half of the world's steel production, and it also accounts for more than half of its dependence on ore. One strange phenomenon is that China's iron ore is dependent on imports, and the more imports, the smaller its initiative. This is the fundamental reason why the Chinese side has always been in a passive position in the iron ore negotiations all the year round. However, since the rules of the game are all formulated by the mining giants, Chinese companies are losers regardless of how they play. Therefore, it is inevitable that blood will be drained by others.

Of course, Chinese iron and steel companies cannot be forever razed by the mining giants. Chinese companies should increase efforts to build a long-term and stable supply chain for iron ore supply, including increasing the pace of overseas mergers and acquisitions, and directly control and master overseas iron ore resources through various methods such as investment holding and equity participation. At the same time, Chinese enterprises should also eliminate guilt, concentrate their strength, and strengthen their right to speak. Only in this way can they remain invincible in the future iron ore negotiations, and their blood will not be drained by others.