Iron ore market financial trend can not be stopped

The trend of financialization is irresistible This year, the iron ore ** listing competition continues to heat up. Following the introduction of iron ore** on the Singapore Mercantile Exchange and the Indian Commodity Exchange, the Singapore Exchange also launched iron ore** last month. In addition, the Chicago Mercantile Exchange Group announced that it will launch iron ore** based on TSI's 62% iron index on the Globex platform from May 12 this year. At the same time, the London Intercontinental Exchange has conducted a simulation transaction of the first three iron ore** varieties, and the London Metal Exchange iron ore** is also in preparation.

Chen Wei, director of the Dashang Industrial Products Division, stated that the Dashang iron ore ** has already been established. The biggest feature is physical delivery, which will provide more risk management for the entire industry chain. At present, the basic preparations for iron ore ** have been well done, and the specific time to market should follow the procedures required by the relevant departments.

Wang Liqun, deputy secretary-general of the China Iron and Steel Association, said that according to relevant statistics, in the past five years, the total volume of transactions in the global ** options market has increased by 60.9%. More than 90% of the Fortune 500 companies have participated in the financial derivatives market. The SGX ore swap volume in 2013 is expected to increase by 3000% compared to 2009. The steel industry chain has a wide range of financial derivatives, including iron ore, metallurgical coal, coke, and rebar.

The trend of financial iron ore is not unrelated to changes in its pricing mechanism in recent years. In 2010, the iron ore inter-temporal pricing system based on the annual agreement price collapsed and was replaced by the pricing mechanism based on the spot ore price index, and its pricing mechanism is getting shorter and shorter. Today, about half of the transaction price is in 1 The monthly spot ore price index is the benchmark. This also makes the price fluctuation of iron ore more and more frequent, which has spawned the need for hedging tools.

Chen Feng, president of the China Minmetals Chemicals Import & Export Chamber of Commerce, said that the frequent fluctuations in iron ore prices have brought challenges to steel companies and iron ore traders, and they urgently need to rely on financial instruments to hedge against the risks in the spot market. Wang Liqun, deputy secretary-general of the China Iron and Steel Association, believes that the influence and influence of financial capital on commodity pricing are increasing. This is the background of economic globalization, global flow of currency capital, global allocation of resources, and integration and synchronization of world markets. Trend. According to statistics, more than 90% of the world's top 500 companies participate in the financial derivatives market. However, the use of financial instruments to hedge risk is a double-edged sword. Only when the combination of production and finance is good, can it enhance physical fitness and stabilize business risks.

Steel companies need to actively face the reporter's understanding at the 2013 Iron Ore Forum that under the trend of large-scale losses and international trade, many domestic steel mills have set up offices in Singapore to allow more flexible participation in hedging.

After 2010, the pricing cycle for imported iron ore was shortened, gradually changing from long-term agreement prices to index pricing. It is understood that under this pricing model, 10% - 20% of the price of the spot bidding mine will determine the other 80% - 90% of the price of the agreement ore. This causes the price of iron ore to rise in advance when the price of steel rises, while the price of iron ore lags behind when the price of steel falls, making steel mills face greater cost pressures.

As the financial attributes of iron ore are getting stronger, the model of index pricing will gradually shift to market pricing. Whether or not they can make good use of iron ore financial instruments to avoid the risk of fluctuations in ore prices and seek more favorable ore prices has become a topic that domestic steel mills must face.

An iron ore trader in China told the reporter that with regard to the current market conditions, even if you do not participate in swap transactions, swap transactions will find you. This is because larger and larger swaps will, to a certain extent, exacerbate the shocks in the spot market.

The statistics show that the volume of overseas iron ore swaps has exceeded 120 million tons in 2012, among which financial institutions accounted for 60%. Domestic steel mills are subject to overseas risk control and other restrictions, and the transaction volume only accounts for 5%.

Wang Liqun believes that under the trend of integration of production and finance, how to make good use of this double-edged sword will be a great challenge and a huge test for steel companies' ideas, mechanisms, and talents. He believes that risk management needs a system to support, and the implementation of hedging hedge risk is only part of risk management.

The director of the Singapore Stock Exchange's Derivatives Department said that financial derivatives are links to spot trading and trades, which helps companies hedge against risks. The main risk lies in judging errors or choosing wrong hedging instruments, or not properly estimating their impact on cash flow in the hedging process. The company hopes to use financial instruments to hedge risks in the iron ore financial market, and it needs to be prepared for accounting, technical operations and how to track dynamic changes.