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The “2018 Ferrous Industry Chain Derivatives Summit” co-organized by Dalian Commodity Exchange (DCE) was held in Xiamen on November 16. The summit discussed the supply and demand of iron ore, the metallurgical coke and coking coal market situations under the new environmental-protection situation and other hot issues and analyzed the present market.
Wang Liqun, Vice President of the China Iron and Steel Industry Association, said in the speech that the Chinese ferrous industry chain has been relatively stable in 2018. Judging from the profit ratio of sales in the industry chain, its industrial profit ratio from January to September was 6.43%, while that of last year was 6.46%, maintaining stable on the whole; with regard to the ferrous industry chain, the profit of the whole industry is positive with no loss. Currently, the domestic industry chain has encountered new difficulties in its development. Next, all market participants should realize balanced development. Domestic industry enterprises should actively make use of futures and spot instruments, to promote the sound development of iron ore trading.
Opportunities and challenges of the ferrous industry in new situation
Hunan Valin Steel Group is a typical enterprise that makes use of iron ore futures market to conduct risk management. It has a mature set of research and development system and hedging system. Wang Shujiao, Chief of the Futures Market Department of Valin Steel, said in the speech that the Futures Market Department, based on the research and development system, is constituted by a spot team, a development and research team and a futures team. The spot team raises risk demand; the research team comes up with hedging plan; and the futures team conducts risk management in accordance with the price trend of DCE’s ferrous products, thus realizing the profit management of long-term orders and the storage adjustment through futures and spot instruments.
Assisting production and operation via futures
It is learnt that the domestic ferrous industry chain has maintained a basically stable supply-demand pattern after years of development. Its focus has been shifted from the game of iron ore increment to that of its inventory. And several major mines in the world have completed the output increase of iron ore on the whole.
Liu Tao, a senior dealer of Mercuria (China) Investment Co., Ltd., believed that the output of pig iron in China has become increasingly constricted since 2007, with its growth and stock curve getting mild day by day. In particular, in terms of the iron ore supply and demand, the fluctuation cycle has obviously narrowed, showing that the iron ore supply and demand in China has shifted from the pressure on growth to the supply of inventory. Judging from the present economic structure, in the inventory economy, the ferrous industry might encounter the redistribution of economic profits and the profit redistribution in the industry chain. With the deepening of the supply-side structural reform, the industry adjustment has been completed on the whole, but the industry profit has gradually accumulated in the middle and upstream enterprises, such as those in the metallurgical coke and coking coal industry and steel plants, while the profit rate of the large numbers of downstream enterprises has decreased. With the successive launching of supporting policies for private enterprises, the profit in the ferrous industry chain might gradually engage in the redistribution from the middle and upstream to the downstream. In this process, risk management should be carried out via coking coal, metallurgical coke and iron ore futures.
Xia Junyan, D & R and Investment Director of the Supply Chain Steel Center of Xiamen International Trade Group, said that domestic ferrous enterprises can seek market opportunities through “expected differences” in assured directions and routes.
