On one hand, the overall demand for steel may see a gradual decline, leading to a slow decrease in the demand for production materials. On the other hand, the supply of scrap steel will increase year by year, serving as a substitute for iron ore. Consequently, the steel industry's demand for iron ore will decrease, and the global iron ore market is gradually transitioning towards a buyer's market. Adapting to the RMB-denominated pricing model that meets the needs of Chinese steel enterprises is an inevitable trend.
International miners take action to stabilize buyer orders. As a major buyer of iron ore on the global market, China's rising domestic demand has driven up iron ore prices; a decrease in demand would significantly impact global iron ore demand and prices as well.
Despite entering a decreasing cycle in iron ore imports, China remains a major global importer of iron ore. In 2018, the incoming iron ore from Australia and Brazil accounted for 79.1% and 55.2% of their iron ore shipments, respectively. Both countries are export-oriented economies, and a significant decrease in iron ore exports could impact their already sluggish economic growth.
Since 2017, Vale, a major Brazilian mining company, has initiated a regular Renminbi settlement with Chinese steel enterprises. This year, the company has visited its Chinese partners multiple times. The Renminbi-denominated contract signed between Rio Tinto and Chinese firms, though small in volume and having minimal impact on the trade model, may indicate a future trend.
Recently, the Secretary of the Party Committee of the China Iron and Steel Association called for the establishment of a benign cooperative relationship between the supply and demand sides of iron ore, which can meet the common interests of both upstream and downstream industries. In response, several international mining companies have actively shown their support. BHP Billiton has expressed its backing for healthy competition among various iron ore price indices and mixed pricing; FMG has also declared its support for a pricing mechanism that accurately reflects the supply and demand relationship of iron ore and provides certainty for the industry.
