November 25, 2008, Australia's BHP Billiton mining company to renounce the acquisition of mining company Rio Tinto. We think that this situation there are two main reasons: First, global financial and economic crisis has worsened BHP Billiton implementation of the plan's financial environment, but also significantly reduced its presence in mergers and acquisitions before and after the affordability of risk; second is to promote global economic recession Enterprise bearish earnings outlook for iron ore next few years.
2 Billiton merger failures are most conducive to China's
We previously thought, as the world's top three iron ore companies BHP Billiton and Rio Tinto if the merger is successful, China's steel industry, the supply of raw materials constitutes a substantial threat. After all, the new company after the merger with Brazil's CVRD two companies will have more than 30% of the world's high-quality iron ore production, and control nearly 80% of the world trade. In 2007, Vale do Rio Doce (VALE) accounted for 42% of seaborne iron ore trade share, accounting for 24% of Rio Tinto, BHP Billiton accounted for 14%. 50% of domestic demand for iron ore imports, equivalent to 63.5% grade refined ore to be imported 400 million tons or more. Thus, the two companies failed to achieve the merger will help to improve China's imports of iron ore, iron and steel industry, the passive situation, the international iron ore is expected to increase monopoly disappear.
In 2009 a long-term contract price is expected to fall 50%
For international long-term contract prices in 2009, we expect the decline to about 50%. Mainly based on as follows: India's current grade of 63.5% Tie Jingfen FOB price of 58-62 U.S. dollars, while in 2008 the international long-term contract price of iron ore is about 86 dollars, the contract price and the spot price of the formation of nearly 28-33% of the upside down. To compensate for the early impact of price increases and to support recovery in the steel industry, we expect the suppliers may make greater concessions in 2009, the contract price will be significantly decreased by 50% to 43 U.S. dollars / ton. If all imported ore prices are denominated long-term contracts in order to estimate the size of imports in 2007, I will save the cost of the steel industry, 17.2 billion U.S. dollars, combined 117.1 billion yuan, equal shares to the domestic scale of 500 million tons of crude steel, the cost of per ton steel can be dropped 234 yuan.
In addition to the short-term foreign aggression though difficult to restore market confidence
Judging from last week's market reaction, it is clear that investors are "two extension" merger failure is holding welcome, iron and steel stocks rose Wednesday is the best description. But requires a clear understanding that, although the "foreign aggression" has been lowered, but China's steel industry's "internal problems" is still. We believe that now is not optimistic about the time when the industry, which is difficult to boost the market continued to do more confidence.
While the current raw material market, the economy is conducive to improving the degree of downward cost pressures from China's steel industry is expected, but the main problem plaguing the industry, the downstream demand is very weak and difficult to digest such as pre-inventory, so good is difficult to raw material markets, the industry recovery Rd. We believe that the current iron and steel industry is at its most difficult period, and will probably continue into next year, and then still need to further develop domestic and international macro-economic environment. Specific risks include: business inventories greater impairment provision for two quarters will be a substantive impact on performance. Particular concern is that leading enterprises, inventory pressures, and absorb stocks expected to continue until the first quarter of next year. The industry is less than capacity utilization, capacity utilization is expected to 60-70%, and affect operating results, the industry in the coming months will fall into the universality of loss. According to the current situation is expected, since October began, the domestic iron and steel will be plunged into a loss of most of the state, and is likely to continue into the first quarter of next year.
