SMM News: with the world's three major iron ore giants have been affected by mining disasters, hurricanes and other unexpected events, iron ore supply situation continues to be tense, Platts iron ore price index heavy 100 U.S. dollars / ton mark, a five-year high. And the domestic iron ore futures main 1909 contract price also closed yesterday (May 20) at 711.5 yuan / ton, also hit a five-year high. Profits in the steel industry fell 30 per cent in the first quarter in the face of a sharp rise in iron ore prices. The sharp narrowing of profits has made a group of iron and steel enterprises more active and active in using derivatives tools to avoid iron ore price risk.
"although this year's Vale mine accident is a sudden event, but many enterprises ahead of schedule layout, to a certain extent, reduced the adverse impact of the sharp rise in mining prices on steel mills." Li Jin, head of Tangshan Wanyang Trading Co., Ltd., told the Securities Times. The data show that China's iron ore futures have maintained the position of the world's largest iron ore derivatives market for many years, with trading volume and average daily position of 83.14 million and 770000 hands respectively in the first four months of 2019, providing sufficient liquidity for enterprises to participate in arbitrage. In the sharp fluctuation of international iron ore prices since the beginning of this year, iron and steel industry chain enterprises actively participate in China's futures market risk aversion. In the first four months of 2019, corporate customer positions accounted for 47 per cent, an increase of 10 percentage points over the same period last year.
Cai Yongzheng, director of the share securities investment department of Nanjing Iron and Steel Co., Ltd., said, "since the beginning of this year, the long price locking order we have operated has achieved the lock in the purchase price of ore and coke, and the role of risk hedge is obvious. At present, futures arbitrage has become our regular risk management model. " According to reports, from the end of last year to the first half of this year, the company's iron ore inventory as a whole is at a normal high level. After the mine accident, on the one hand, the company increased spot procurement to ensure production and supply; on the other hand, it took the initiative to use derivatives tools to avoid risk.
Derivatives risk aversion strategy has become the active choice of iron and steel enterprises, which has been obvious from the current supply and demand situation of the iron and steel industry. Duhui, a researcher at Sino-Thai Iron and Steel, believes that according to the latest data, the daily output of crude steel reached 2.83 million tons in April, not only breaking the 2.7 million tons before the production limit, but also the first day in history. While the marginal growth space on the supply side exceeded market expectations, the demand side, especially the real estate side, was stronger. From January to April, real estate investment increased by 11.9% over the same period last year, and the area newly started increased by 13.1% over the same period last year. Let the iron and steel industry supply and demand double increase situation.
But in terms of efficiency, the industry's profits continue to fall. The first quarter data of the China Iron and Steel Association showed that the total profits of its member iron and steel enterprises were 37.5 billion yuan, down 30.2 per cent from the same period last year.
Data show that since the beginning of this year, the cost of imported iron ore has risen rapidly, and the spot price of iron ore has ushered in a sharp rise. According to public data, from January 2 to May 17, 2019, the Platts index rose from $72.35 / ton to $100.4 / ton, an increase of 39%. The settlement price of iron ore swaps on the Singapore exchange rose 41 per cent from $69. 41 a tonne to $97. 76 a tonne. During the same period, Qingdao Port (Hong Kong shares 06198) Jinbuba powder rose from 481yuan / ton to 686yuan / ton, an increase of 43%, while the settlement price of China's main iron ore futures contract rose from 491.5 yuan / ton to 695.5 yuan / ton, an increase of 42%.
"the profits of steel mills this year are significantly narrower than last year, and steel mills will be stricter in cost control." The person in charge of a large steel mill in South China told reporters that from the point of view of the whole iron and steel industry chain at present, with the rapid rise in mining prices, the upstream and downstream profits of the industry are being redistributed, and the profits of foreign mines are picking up rapidly. Profits at steel mills have narrowed sharply. In this regard, steel mills must use derivatives tools to speed up risk aversion and properly respond to market changes through physical and virtual inventory in order to keep corporate profits from being weakened.
Cai Yongzheng added, "as iron ore futures functions effectively, physical enterprises are increasingly concerned about futures price fluctuations." At present, many port iron ore traders will adjust spot pricing with reference to futures prices, and many customers are trying to carry out the basis point price model based on futures prices. It can be said that the degree of integration is deepening in the middle of the iron ore trade. "
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