Increased industry risk
Since the disintegration of the iron ore long agreement price mechanism in 2010, iron ore prices have fluctuated frequently. Based on China's annual import of 686 million tons of iron ore (2011 data), the rise and fall between the two means that the industry is facing a risk of fluctuations in raw material units of up to 800 million US dollars. The fluctuation of international iron ore prices has a great impact on the production and operation of steel mills, and steel mills are in urgent need of tools to hedge the risk of iron ore price fluctuations.
From the overall business situation of the industry, since the fourth quarter of 2011, domestic economic growth has slowed down, downstream steel demand has fallen, steel prices have fallen sharply, and domestic steel companies are basically in a state of meager profit or even loss. According to the statistics of China Steel Association, as of October last year, China’s steel industry had a cumulative loss of 3.4 billion yuan, of which 80% of the 80 units in the key statistics accounted for 39% of the losses, and the loss of the loss-making enterprises totaled 28.9 billion yuan, a loss of 10 years compared with the same period in 2011. Compared with 100 million yuan, the absolute value differs by 27.9 billion yuan. The market generally believes that the industry situation is grim, and the conditions that steel companies are generally sad will continue.
At the same time, in recent years, the international iron ore trade price has been negotiated by the “long-term agreementâ€, and the monthly pricing has been gradually changed to the index pricing based on spot trade. However, due to the small sample size of the Platts index and the unpublished method of preparation, the bidding process of the three major mines is not public, so its price transparency has been subject to market disputes. Liang Yun futures analyst He Bei said that due to the monopoly of iron ore in the three major mines, the steel mills basically have no bargaining power for the upstream. The mine has long eroded the profits of domestic steel enterprises. Recently, due to the lack of domestic downstream demand, the steel price Stepping into the bear market, faced with two pressures, the steel mill's operating conditions are even more worrying.
Steel companies actively prepare for war
In the current situation of upstream iron ore price fluctuations, steel overcapacity, and loss-making operations, iron ore futures will undoubtedly provide steel companies with tools for cost management and risk management. In this regard, Hu Yuyue, director of the Institute of Securities and Futures of Beijing Technology and Business University, believes that iron ore futures can provide the industry with tools to effectively manage risks, which will facilitate the transfer of industry risks and help establish fair and reasonable trade pricing methods.
Li Wenzhao, an analyst with Xingzheng Futures, told reporters that for steel mills, traders and mines, all rebar futures in the previous period hedged the risk of steel price fluctuations, but iron ore that fluctuated more sharply than steel prices did not. The right product can be involved in the operation. The establishment of iron ore futures by Dachs has fully supplemented the important part of the steel industry's industrial chain, which is conducive to all enterprises in the steel industry chain to grasp the market conditions, hedge the risk of price fluctuations, stabilize the income, and help the company to profit. Under the meager market environment, it has grown stronger.
State-owned steel companies have begun to learn actively. Li Daguang, deputy prime minister of Angang International Trade Co., said: "Futures trading is a financial derivative. Enterprises that use it well will play a positive role. Otherwise, it is not. Angang is also actively learning and participating in financial derivatives such as iron ore futures. Involved."
The steel spot enterprises also have an open and positive attitude towards the approval of iron ore futures. “The iron ore financialization trend is inevitable and unstoppable, and it is hoped that enterprises will attach great importance to it. In the face of the fluctuating iron ore market, it is necessary The company is more refined in its operations," said Chen Feng, president of China Minmetals Chemicals Import and Export Chamber of Commerce.
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