Abstract The first Singapore Iron Ore Forum is being held and attracted many representatives of Chinese steel companies. Industry insiders said on the 8th that the trend of iron ore financialization is irreversible, and steel companies should prepare for this as soon as possible. Participants said that the trend of iron ore financialization and its pricing machine...
The first Singapore Iron Ore Forum is being held and attracted many representatives of Chinese steel companies. Industry insiders said on the 8th that the trend of iron ore financialization is irreversible, and steel companies should prepare for this as soon as possible. Participants said that the trend of iron ore financialization is not unrelated to the changes in its pricing mechanism in recent years. In 2010, the international pricing system of iron ore based on the annual agreement price collapsed, replaced by the pricing mechanism based on the spot mine price index pushed by international mining giants, and its pricing mechanism is getting shorter and shorter. Today, about half of the transaction price They are based on the one-month spot price index. This has also caused iron ore prices to fluctuate more and more, which has created a demand for safe-haven tools.
Chen Feng, president of China Minmetals Chemicals Import and Export Chamber of Commerce, said that frequent fluctuations in iron ore prices pose challenges for steel companies and iron ore traders, and financial instruments are needed to hedge the risks in the spot market.
Chen Feng said that the iron ore swap products launched by the Singapore Exchange have grown rapidly and have also launched iron ore standard futures contracts, which will provide a hedge tool for the market and will provide a centralized and open market for all participants in the market. The price generated in the near-competitive environment has important reference significance. China is also conducting research on iron ore futures and hopes that the two sides will strengthen cooperation.
Yan Xianming, director of the Derivatives Division of the Singapore Exchange, said in an interview that financial derivatives are a link between spot trade and futures, which is conducive to corporate hedging risks. But he believes that the use of financial instruments to hedge risk may become a double-edged sword. The main risk is to misjudge or choose the wrong hedging instrument, or fail to properly predict its impact on cash flow during the hedging process. Companies want to use financial instruments to hedge risk in the iron ore financial market, and need to be prepared for accounting, technology operations, and how to track dynamic changes.
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