Recently, steel prices go up and up, the raw materials of iron ore price is in 2020 the average price of $108 per ton rose to a record high of $210 per ton, both China and the United States, seem to be lost in the shortage of steel "trouble", has always been the basis of "high quality and low price" metal also seems to be a property of precious metals.So what is the logic behind the soaring global steel and iron ore prices?What are the underlying causes?How will high steel prices adversely affect us?How can high steel prices be contained?

A large area of domestic steel prices, what is the reason behind?

Recently, a number of domestic steel mills are also constantly raising the price, more than 90 steel mills take the initiative to increase the purchase price of scrap steel, in order to fight for the source of raw materials, the price of steel factory has also climbed to 5350 yuan per ton.Domestic steel prices on the continuous adjustment is caused by international and domestic factors.At the international level, the price of iron ore, a raw material, has been rising, directly leading to a significant rise in steel costs;At the domestic level, due to environmental reasons, some steel mills are limited production, steel and iron capacity is difficult to meet the growing demand for steel.Due to the strong domestic economic boost, the recovery trend is obvious, the new domestic infrastructure development situation is good, the demand for steel steadily increased.

In fact, the consumption of steel, iron ore prices artificially high, and rising demand in domestic steel production capacity shortage is only part of the reasons for high steel prices, is another part of implicit factors, many steel companies and middlemen to see in the short term trend of steel prices will keep rising, so a large number of hoarding steel to obtain interest, this is the actual inventory steel on the high side,But there are deeper reasons for the low supply on the market.

With this year's domestic steel tight market, because of overcapacity in the past and has been a loss of steel enterprises, this year, most of the domestic 30 steel enterprises are profitable in the first quarter, including Baosteel first quarter net profit of more than 5 billion yuan, which is very rare in the past.

Taken together, China's robust post-epidemic economic recovery, combined with high iron ore prices and insufficient capacity of domestic suppliers, has led to the insane price of domestic steel.

Two, the United States is also short of steel?Is the world in a steel shortage mode?

According to the U.S. Steel Industry Association, U.S. steel is also experiencing supply shortages and soaring prices.According to US media reports, the current price of US hot-rolled coil has reached a high of US $1,500 per ton, which has touched the all-time high for US hot-rolled coil and is equivalent to three times the average price level of nearly 20 years.In 2020, hot-rolled steel hit a record low of $460 per ton in less than a year due to the impact of the epidemic on production and consumption and the economic downturn.

Hot rolled steel has risen more than $1,000 and steel prices have been on a roller-coaster ride.So why is the U.S. steel market so tight and panicked?What's the reason?

On the one hand, the Biden administration continued to launch massive fiscal stimulus policies, including the first wave of 1.9 trillion "helicopter money" subsidy plan and the second wave of 3 trillion infrastructure stimulus plan. The flood of monetary policy directly led to global inflation, which was the first factor that led to the rapid rise of steel prices.On the other hand, Biden's infrastructure stimulus plan, which includes rebuilding and renovating Bridges, highways, stations, airports, ports and other infrastructure projects, is expected to lead to a surge in U.S. demand for steel, which is directly leading to a rapid rise in prices in the futures market.Industry analysts in the US said "panic" was spreading in the US and global steel markets and was contributing to the tightening of US steel.

Three, the high price of iron ore to us what adverse impact?How to curb high steel prices?

The global iron ore price continues to rise is the direct cause of the domestic steel price rise, and the iron ore pricing monopoly system is the fundamental reason to support high iron ore prices.

The annual Platts price index averaged $108 per ton in 2020, while in May 2021, the Platts price index broke through the all-time high of $210 per ton.

Vale, Rio Tinto, BHP Billiton and Fortes-MG account for most of the world's iron ore supply, while China is highly dependent on imports, with Brazil and Australia alone accounting for more than 80 per cent of China's iron ore supply.Because of the over-concentration of resources, the world's four largest miners have an absolute say in iron ore pricing.

Although the global epidemic has been effectively controlled and the economic situation has recovered to a certain extent, the recovery momentum and the global infrastructure demand, including the US and China, are far from enough to support $210 per ton of iron ore. Therefore, there is no doubt that the price of iron ore has seriously deviated from the current fundamentals.The current high price of iron ore is the result of monopolistic pricing system and capital market speculation.

What adverse effects will high iron ore prices bring to us?

First, high ore prices will be transmitted to all aspects of the steel industry chain.High iron ore will seriously compress the profit space of downstream steelmaking enterprises. In order to make profits, steel enterprises have to raise steel prices. However, the rise of steel prices will inevitably be transmitted to the downstream of the industrial chain and ultimately to consumers.The price of all end products using steel will be affected, such as: the cost of railway tracks, trains rise;The price of construction and building materials has gone up;The cost of cars has gone up;Things as small as stainless steel cutters and thermos flasks are subject to fluctuations in steel prices.

Second, steel is an important basic material, its price rise will inevitably lead to a certain degree of inflation, the inflation will carry out horizontal transmission, indirectly pull up prices, including food, eggs, milk, oil and other important materials related to people's livelihood.

Three is the high price of iron and steel, steel prices are not conducive to the domestic steel enterprises of high efficiency, environmental reform, high steel prices will make those inefficient, high energy consumption of steel production line is still profitable, which is not conducive to the closure of steel enterprises to invest energy to update technology and equipment, to the development of low energy consumption and high efficiency.

Four is the price of iron ore will severely impact manufacturing, due to steel prices, lead to many steel as raw materials in the downstream manufacturing enterprise's production enthusiasm, under the current steel prices, inevitably lead to terminal price increase, for example, the building materials companies, car companies, etc., do not rule out the downstream enterprises will limit production temporarily, after watching the steel prices return to reasonable interval,Then carry out normal production.

IV. How long will the situation of high iron ore prices last?How to deal with the negative impact of steel prices on us?

In the short term, driven by high profits, four major miners, such as Australia and Brazil, will not significantly increase production. With the further improvement of the international epidemic situation and the pace of economic recovery, the global consumption of steel will continue to grow slowly, and iron ore will remain in the high-price range throughout 2021.In the medium and long term, after the release of infrastructure manual-profit and the diminishing effect of stimulus policies, steel consumption will fall into a downward trend, and iron ore will be greatly impacted and gradually return to the rational range.The big four miners will also move away from the windfall profit model.

For the current high price, first, we should fully seek alternative sources other than the big four miners, or gradually shift Australia's share of iron ore to Brazil, and stir up the ore price competition between Australia and Brazil through the huge buyer power of China, thus disturbing the current pricing system monopolizing by the big four miners.Second, we should fully fight in the current high steel prices of steel hoarding behavior, as far as possible in the domestic market to release steel inventory, alleviate the situation of steel shortage.