It is reported that China Iron & Steel Association proposal to shut down spot iron ore market and impose a unified price has been rebuffed by the National Development and Reform Commissions. The news soon once again put CISA proposal under the spotlight.
Researchers said "The single one unified price may discipline the market, but it could also largely hamper the market liberalization trend."
CISA has been fighting long and hard for lower iron ore prices and ordered spot market. Last month, CISA proposed to set up a national unified iron ore price saying this is the key to bring order to China iron ore market. However, insiders said CISA idea maybe is good, but it is unrealistic in exerting. It said a unified price means to negotiate prices with all suppliers for each iron ore products and this is an ultra-heavy task"
Though no official announcement indicates NDRC refusal on CIAS proposal, we regard this as understandable if it comes true. NDRC is more inclined to encourage market liberalization and market stabilization. Mr Li Zuojun with NDRC said "CISA's proposal is more about to discipline the market, but commodities prices should be determined by the demand and supply situation of free market. He said that he was unaware of NDRC decision yet.”
The fact of political powerless may be another reason for CISA's difficulties in dealing with market disorder. The association has little genuine clout among government circles and although it reports informally to State Council it has no clear relationship with any specific ministry.
It is said NDRC meeting held last week with MIIT, MoC and other related departments were mainly focused on industry restructure and elimination of overcapacity instead of iron ore prices.
The government has been dedicated to create a free market, but to intervene or regulate the market as planning-economy. Therefore, we believe NDRC is unlikely to agree the single one unified market price. Market insider said "The unified price would eventually bring huge and frequent vibrations to the market."
Reporters said however the unified iron ore price proposal was welcomed by small and medium mills, though qualified importers afraid such mechanism would finally bring disadvantage to them.