Chapter 14 Chapter 13 The War of Coke

Can coke check and balance ore prices? Why do Chinese companies have no pricing power? The exploitation we suffered was no different from that of the Qing Dynasty! In 2009, the international iron ore price negotiations were full of ups and downs. At the beginning of 2010, iron ore negotiations should have entered a "warm-up period" of gradual heating up, but the industry was "calm".According to news from the industry, the three major Australian miners have recently significantly reduced their contacts with China, and instead placed the main force of negotiations on Japan, which may lead to another loss of China's right to speak about pricing and bargaining.The two raw materials that all steel plants in the world must use today are iron ore and coke.For a long time, coke has been regarded as the "killer mace" of China's steel industry and a powerful bargaining chip to check and balance iron ore negotiations.The release of coke and the attack on ore have become the concerns and demands of the industry and the media.

In the past year, as China paid more attention to the construction of "iron machinery", the demand for steel was particularly large, and the price of iron ore was so high that the entire Chinese domestic steel enterprises were in the process of acquiring iron ore. "Collective powerlessness" on this issue.Negotiations were not good, and they had no right to speak, so looking for hope in despair, everyone seems to have quickly found a new path called "shooting coke, hitting ore".I think the media and the industry seem to have an illusion of coke, because China is the largest producer and exporter of coke, so it is hoped that by controlling the export of coke, it will affect the global steel production, and then affect the iron ore demand of the steel industry. Then check and balance these mining giants from the supply and demand relationship of iron ore, and indirectly enhance our right to speak in iron ore negotiations.In fact, this is a beautiful imagination of the media and the industry, we are really a lovely nation.But I regret to tell readers that although we have always said that China is a big country of coke, it has now changed from a trump card to a target of sniping. Do you know the reason for this?

The so-called trump card is just our good feeling, and we never have the opportunity to use it.Because from 1996 to 2006, China's coke exports increased by 14 times, but they were all exported at low prices, and did not return any benefits.We once thought that if iron ore is not willing to give us such a high price, I will give you a higher coke price as revenge.Sorry, we have never been able to raise the price of coke, because we do not have the pricing power of coke. Let me make an analogy with readers. If you want to use a weapon, you have to be good at using it. If you want to shoot a gun, you have to be good at shooting it. You can’t win with a gun.Let me give another example, don't talk about coke, are rare earth resources unique to China?As a result, it was exported at the cheapest price.Why?No pricing power.So today I want to say something, what is the scariest thing in the world?It is the battle of pricing power.Why is our iron ore negotiation so miserable?Because there is no pricing power.What about coke?I see that our pricing power is also slowly eroding.I want to show you a picture.The column in Figure 13-1 is our coke export volume from 2007 to 2009, and the line is the export price.Readers will find that my country's coke export volume has begun to decline sharply in 2008. In 2009, our decline rate exceeded 95%, while our import increased by 1200%.This node is in August and September of 2008.

Do you think it's funny? When we increased imports in 2009, you found that the price went up.When we used to export all the time, the prices were very low. Let's change to the next picture and look at the comparison between the price of crude oil and the export price of coke.The upper left line in Figure 13-2 is the price of crude oil, and the lower right line is the export price of coke.I won't say any more nonsense. Readers will understand after reading it for themselves. It turns out that the price of coke is determined by the price of crude oil.After the price of crude oil rose, the price of coke also rose.When the crude oil price reached the highest point, the coke price had not yet reached the highest point, and it took a while to reach the highest point.That is to say, crude oil goes first and coke lags behind.Therefore, when crude oil falls, coke also falls; when crude oil rises, coke also rises.In other words, these foreign capitals, or countries headed by the United States, have completely manipulated the price of coke through crude oil prices.Therefore, not only have we lost the pricing power of iron ore, but now even the pricing power of coke, a weapon that we feel good about ourselves, has also been handed over to others.As long as the United States manipulates the price of crude oil, it can control our coke price.

So the coke shot to hit the ore is completely an illusion.We used to say that China is the largest producer and exporter of coke, but Figure 13-1 has clearly shown that China's coke export has dropped sharply and it has begun to become an importer. China may now become the world's largest producer and exporter. It is the second largest importer of coke after Japan, so the price of coke should increase.A research institution predicts that the price of Australian coke is expected to rise from the current US$175 per ton to US$200 per ton in 2010, an increase of about 15%.

For iron ore, we still have someone to negotiate with. Although they ignore us, at least there is still a mechanism for negotiation, although the negotiation has no results.But you see, coke is even worse now, there is not even a negotiation mechanism, we can't talk about it, and we can directly control the price of our coke.Let me ask readers to think again, does corn have a negotiation mechanism?Nope.You will find that the price of corn is also linked to the price of oil, because corn can be used to make alcohol, which is a biofuel.The biofuels that the United States is currently engaged in have a substitute relationship with petroleum. For example, when the price of petroleum rises, they use more alcohol; when the price of petroleum falls, they use less alcohol.Therefore, a complementary relationship is formed between alcohol and petroleum.So the United States can control the price of corn by controlling the price of oil.Do soybeans have a mechanism for negotiation?Nope.You must not think that only coke does not have a negotiation mechanism. In fact, except for iron ore, we have a negotiation mechanism, and we do not know how to negotiate. Basically, other products do not have a negotiation mechanism.What determines the price?Is it the supply and demand relationship mentioned in our textbooks?Not at all, it is basically controlled by Wall Street and manipulated through various methods.So who is standing behind Wall Street?Isn't that the US government?So, that is to say, if there is a negotiation mechanism, at least there is still a possibility of negotiation.There is no negotiation mechanism, just like what Li said, "give me a word".This is where it gets scary.

Basically, we have always been at the mercy of others in the international market.On the one hand, they will accuse us of low-price dumping, and on the other hand, they will accuse us of restricting sales, which is simply deceptive.What is low price dumping?For so many years, there have been many coking companies in China, and there are many such companies in Shanxi. Because of competition with each other, they export coke to the EU at low prices.By 1999, the EU had launched an anti-dumping investigation against China; in March 2004, the anti-dumping investigation was suspended; by 2005, the anti-dumping measures were terminated, which is the first stage.In the second stage, the war started again in 2006. At that time, the international raw material prices began to rise crazily, and the European Union requested an anti-dumping investigation against China; in 2008, a ruling was made to implement anti-dumping duties.

We responded positively after being sanctioned. China raised tariffs on coke exports twice in 2008 to reduce exports.As a result, by the end of 2008, global raw material prices plummeted, while China's coke prices were higher than global prices, and exports plummeted, down more than 95% year-on-year, and exports to Europe and the United States stagnated.However, the European Union and the United States filed a lawsuit against the WTO, accusing my country of restricting the export of industrial raw materials including coke, and arguing that China should increase the export quota of the above-mentioned products or reduce export tariffs to increase exports.

In ten years, the fate of coke can make a movie, the whole farce of coke!They use coke as a means to manipulate us like dolls.Readers, think about it, we are not so poor. We can’t sell them, we don’t sell them ourselves, and we set limits so that we can’t export them to the head office. The result is also not good.I don't know what the ancestors of the Qing Dynasty thought of our descendants when they saw us being so useless. When we raise export tariffs to reduce exports, do we think that prices will also rise?Let's look at the picture above again. In August 2008, when we raised export tariffs, exports should have fallen, so prices should have risen.As a result, you will find that the price has dropped since September, why?Because the pricing power has been handed over to others.When we raised tariffs and exports fell, they got upset and started manipulating our prices.After China became an importer of coke in 2009, they began to raise the price again, resulting in the loss of our imports.

Many people have reflected on this matter, especially in Shanxi, because Shanxi is a very important province for coke production in China.Since 2007, the coking enterprises in Shanxi have also formed an alliance. They want to imitate OPEC, that is, they want to adjust production, balance supply, control prices, and ultimately control the right to speak through the formation of an alliance. However, if we want to control prices in this way, you are underestimating Western imperialism.The steel enterprises in Guangdong told me that in order to control prices, they set up a futures market.I laughed out loud, and I said what price can your futures market control?Your futures have no impact on foreign countries at all.Although there are many coking enterprises in Shanxi, they do not work together. Just like the iron ore traders, they only serve their own interests without a unified action. This alliance is only in name.It's useless even if you act in a unified way. When you are really unified, you will find that the price is not determined by you.If we all act together, we will export or import after others set the price.If we don't act in a unified way, we will kill each other, and the price will be even worse.

Western countries are really hateful. They closed their coke factories and put them in China for production. How much pollution will our future generations suffer?Afterwards, they blamed us, ouch, the coke you produce is either being dumped at a low price, or it is restricting sales, and we are wrong in whatever we do.Then let me ask you, why did you shut down your own coke plant?Let us produce, and then blame us for being wrong, and finally say that our coke plant produces carbon dioxide, as I said in the previous chapter of this book, and we have to pay carbon tariffs to form "low-carbon dollars" and return them to the United States to help them develop their economies. What a pity, our exploitation seems to have not improved much compared to the Qing Dynasty. Krugman, Svensson and Eggerson all urged the Japanese government to lower the yen exchange rate.They believe that this will not only stimulate the economy by expanding exports, but also increase the prices of traded goods, thereby achieving the purpose of raising domestic public inflation expectations.The key flaw of this proposal is that Japan is already one of the world's largest trading superpowers, and the beggar-thy-neighbor policy of forcibly devaluing the yen will inevitably meet fierce opposition from trading partners.The opposition from overseas will focus the foreign exchange market participants on the trade imbalance, and ultimately not only fail to lower the exchange rate, but may actually increase the exchange rate. The most prominent example was in the last week of June 1999, when Japan's Ministry of Finance Minister Eisuke Sakakibara announced a week before his retirement that he would devalue the yen against the dollar from 117 yen to 1 dollar to 122 yen to the dollar. 1 U.S. dollar, in order to achieve this goal, 3 trillion yen has been used to buy U.S. dollars. When the news of the Japanese government's involvement in the foreign exchange market reached Washington, then U.S. Treasury Secretary Lawrence Summers was furious.With a deep understanding of the attitude of the US Congress, which is deeply angry about the Japan-US trade imbalance, and the nature of the problems facing the Japanese economy, Summers immediately announced that he would not recognize this kind of intervention in the foreign exchange market.In short, his proposition is that the United States will never tolerate the Japanese government's actions to manipulate the exchange rate, and the Japanese government should strive to expand domestic demand instead of relying entirely on external demand.Summers' sharp reaction to Japan's policies jolted currency market participants, sharply focusing their attention on the trade imbalance between the two countries.Eventually the yen appreciated to a point where it was close to 100 yen to the dollar. Although Summers' response in June 1999 had a profound impact on Japan's subsequent policy formulation, those foreign scholars who advocated the devaluation of the yen completely ignored this episode.Just four months after this incident, as already mentioned, in October 1999, I had a 90-minute debate with Professor Krugman.I was shocked to learn that Professor Krugman was unaware of Summers' statement that the US government would not allow Japan to rely on overseas demand to pull itself out of recession.As a scholar, you may be able to receive a salary without reading newspapers every day, but as Japan, which has a huge trade surplus, it is simply impossible to implement the yen depreciation policy without the consent of the United States and other trading partners. This article is excerpted from "The Great Recession: How to Survive and Thrive in a Financial Crisis" by Richard C. Koo