For a long time, the iron ore industrial chain has been characterized by a structural imbalance, with upstream international mining companies' outsized profitability, while downstream domestic steel mills have struggled to make ends meet - a giant contrast, according to the China Iron and Steel Association. This uneven and irrational distribution of interests along the value chain has hindered the healthy and sustainable development of the entire industry. In recent years, calls for rule restructuring and value normalization have been growing louder from various sides. The iron ore market landscape is now undergoing profound adjustments, and a fairer, more transparent, and more sustainable new market order is gradually taking shape, CISA stated.
First of all, with its super-sized domestic market, China has effectively hedged against the variables coming from global supply. China is the biggest iron ore consumer in the world. Its steady production and smooth logistics have helped absorb supply shocks from uncertainties. This gives global miners a clear picture of demand, so they feel confident investing heavily in long-term exploration and development projects. In short, China's market stability and sheer size ensure that global iron ore supply keeps growing.
Second, a more diversified iron ore supply system is emerging. With global investment in iron ore development picking up and major projects in West Africa and other regions coming online, the supply curve has flattened, resource allocation has improved, and the market has become more resilient and competitive. These supply-enhancing moves will help bring down costs and risk premiums across the industry chain - and that is good news for every steelmaker in the end.
Moreover, resolving the structural interest disparity between upstream and downstream players has become a widely shared objective.
Actually, upstream and downstream companies are not playing a zero-sum game. They need to work together more closely to share profits more fairly across the chain, which will realize a win-win outcome. Only when downstream steel enterprises enjoy a fair market position, comparable bargaining power and reasonable operating returns can they underpin stable and sustainable demand for iron ore - and only then can upstream mining companies secure long-term and stable earnings.
Finally, we're seeing a more objective and transparent iron ore pricing system emerge. China has the world's biggest portside spot market, and its prices are a truer reflection of real supply and demand. The launch of the RMB-based iron ore price index gives the market an alternative to the dollar index, making price discovery more representative and transparent.
In conclusion, CISA stated that promoting the use of RMB-denominated price indices in international trade will help curb speculative capital flows and enable prices to better reflect changes in supply and demand fundamentals - which represents a significant improvement to the global iron ore pricing system.
