95% increase in price of iron ore


In June, the summer solstice just passed. The Chinese, who are allowed by economic conditions, are planning to buy a car this season to make their days more comfortable. Moreover, car prices have fallen to the price range that most urban residents can afford. From 30,000 Alto, QQ, to hundreds of thousands of Fox, to hundreds of thousands and even millions of Audi, BMW. Its richness is dazzling. Moreover, this time is also mingled with various types of renewal models that have been continuously listed in various names in various categories.

Oil price pressure

For automakers, this should be a season in which sales should rise slightly. However, the price of oil suddenly rose. From the early morning of June 20th, the price of gasoline and diesel increased by 1,000 yuan per ton, equivalent to a rise of 0.8 yuan and 0.92 yuan per litre respectively. Different from the previous slight increase in oil prices, the price of oil has risen by nearly one per liter. This is the largest increase in oil prices in recent years.

The adjustment of oil prices is obviously closely related to the fact that international oil prices continue to go straight to the $140 mark. It is only from the perspective of economic security that China's oil prices have been slowly adjusting to the rate of increase in global oil prices. According to the latest news from foreign power sources, Nigeria's oil production in Africa is drastically reduced and it may offset Saudi Arabia’s decision to increase oil production. Oil has never been so tight.

The continued rise in oil prices has dampened people’s buying enthusiasm, despite the fact that over the past few days, various automakers have continued to publicize their own fuel-efficient ways, fueled by the price of oil, even though they continue to publicize their sudden “breakthroughs” in the electric vehicle sector.

However, the pressure on people to buy cars has not been reduced because of these fancy laces.

This means that after the big leap in production that began in 2003, the already saturated Chinese car market will have more cars to sell. Reflected in the sales terminal of automobile manufacturers, it is a large backlog of inventory.

Supply exceeds demand, the final effect is the price reduction news that people can see every day. Under the overall theme of price cuts, the price cuts of various kinds of tricks are endless. The auto market has already been like the stock market very early on. People can only see the continuous decline.

People have become accustomed to price cuts, and prices of cars have obviously not been able to sell in the current market environment. Although some companies have once speculated about price increases, the final result has been annihilated by price cuts.

The profit space is constantly being squeezed. The value-added features of the brand continue to devalue.

Iron ore pressure

The fatal blow to the Chinese auto industry is coming. The rise in iron ore prices is not 65% that was announced at the beginning of the year, but may be 95%!

The latest news from the Financial Times shows that the international giants Rio Tinto and BHP Billiton require Chinese iron and steel enterprise customers to accept iron ore price hikes by the largest ever on Monday, otherwise supply from Australia may be interrupted.

Traders and industry officials stated that the annual iron ore contract prices requested by the two mining companies rose by more than a 71.5% record increase in 2005, and they strive to increase prices by 85-95%.

Rio Tinto and BHP Billiton have warned Chinese customers that some of the annual contracts will expire on June 30 and they will stop supplying them on the old terms. They said that they would switch iron ore to higher-priced spot markets.

Analysts pointed out that most of Rio Tinto’s iron ore contracts will expire on June 30. Some of BHP Billiton’s contracts will not expire in September, so there is more time to negotiate and Rio Tinto is the first to negotiate.

Australian Macquarie Bank stated that Rio Tinto seeks to increase prices by more than 85-95% of market expectations. The bank stated in a report: "This position shows that investors must be prepared for the long-term negotiations that may lead to unpleasant results."

Rio Tinto and BHP Billiton have requested prices that have risen more than Brazil's Vale, because they are close to China, reducing transportation costs.

Traders said freight costs from Australia to China fell by 37% last week due to the fact that at least one of the mining companies stopped booking some of the ships to be transported under the original contract in July. This shows that if the negotiations break down, they intend to ship to the spot market.

In a report, Morgan Stanley pointed out that the iron ore market is facing an “unprecedented” price situation. "The market is still extremely tight and there is a serious shortage."

The Chinese auto industry is facing an unprecedented crisis, and the release of this crisis may have only just begun in the second half of 2008.

If the goals of Rio Tinto and BHP Billiton are reached, the price of Chinese steel will rise and the automobile will still be the product of more than 70% of steel. In March of this year, some domestic automakers had disclosed that the pressure of 65% of iron ore going to the end of automobile costs is to cut about 3-5% of the overall profit, and today 95% of the upward pressure is transmitted to the terminal. Want to know. If calculated as a ratio of 65% to 3-5% of profit loss, the profit loss caused by 95% of the price increase is about 4.4-7.3%, and the profit of automobile manufacturers is further compressed.

Overcapacity

In 2008 China's auto production will exceed 10 million vehicles. To become the world’s second-largest car market is already a staple.

At the end of 2007, each car company announced its new 2008 sales plan. In 2008, it had reached or exceeded the scale of one million vehicle manufacturers such as FAW, SAIC, Dongfeng (plus the acquisition of Hafei's mini vehicle production), and Chang'an Group. The automobile giant Volkswagen also announced a high-profile announcement that it will exceed one million vehicles this year.

Although the self-owned brand opened higher and lower during the New Year, Geely still expanded wildly, planning to produce 1 million vehicles in 2010; BYD also shouted the 2011 production capacity of 850,000 vehicles.

With the addition of GM's two joint ventures, Shanghai GM and SAIC-GM-Wuling, it is easy to realize the planning of one million vehicles. In 2007, Volkswagen’s sales and profitability in China were all better than expected. As Volkswagen’s auto production load now exceeds 90%, the public is considering building a new automobile factory in China. In order to achieve the goal of occupying 10% of the Chinese market in 2010, Toyota plans to build a second factory in Guangzhou. Nissan plans to add another production line to the Dongfeng Passenger Car Guangzhou plant this year. The second plant of PSA Peugeot Citroen is expected to be completed next year. The production and sales target for 2010 will reach 400,000 units. The second plant in Ford and the second plant in Kia are also put into operation in the second half of 2007.

In addition to the above-mentioned companies that are already preparing to expand production, some companies are cutting back their heads. After Lifan and JAC entered the field of cars, there are still a large number of companies waiting to enter, including sports cars in Dongguan, Guangdong and Malaysia. In addition, traditional SUV car manufacturers such as Changfeng are also working hard to obtain the “skilled card” for car qualification.

Zhang Guobao, deputy director of the National Development and Reform Commission, had publicly stated that excess capacity has now become a problem that the National Development and Reform Commission and the automobile industry are worried about. According to the investment plan of major automobile manufacturers during the "11th Five-Year Plan" period, by 2010, the domestic auto scale production capacity may exceed the expected market demand. According to current estimates, China’s existing capacity to produce complete vehicles exceeds 10 million. Moreover, various industrial capitals and financial capitals continue to enter the automotive industry.

Overcapacity can only have one result, vicious competition. The external manifestation of vicious competition is the loss of rational price competition, making people lose money, and the problems that appeared in the field of mobile phones will also appear in the automotive industry.

This is by no means an alarmist. In this round of competition, the price drag caused by oil prices, the sharp increase in the price of steel plates for vehicles, and the price competition for vicious competition. The final result is still eliminated.

The enterprises that can escape this upcoming storm are the core of their survivability, which is a strong capital support. This requirement, for most of the autonomous products, is tantamount to the embarrassment of not being able to afford cotton in the winter. Under the background of the country's overall monetary tightening, the survival of independent brands will be unprecedentedly challenged.

Premier Wen said, "I am afraid that in 2008 is the most difficult year for the Chinese economy." In 2008, it will also be the beginning of difficulties for the Chinese auto industry.
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