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Base pricing model to create a win-win ecological circle between domestic mines and steel enterprises
Sep 23,2020 10:04CST
translation
Source:Futures daily
The content below was translated by Tencent automatically for reference.

SMM Network News: a seminar on domestic mine pricing model supported by big businessmen was held in Shanghai a few days ago. The Futures Daily reporter learned at the meeting that the current pricing model of domestic mines is relatively single, large factories and mines are mainly priced directly by steel mills, independently operate mines or set prices by reference index, but the overall say is not strong, and in the long run this is not conducive to the further development of domestic mines. Some market participants believe that with the increasing financial degree of iron ore, enterprise pricing can explore more ways to solve the shortcomings of the current pricing mechanism, so that enterprises focus on improving their core competitiveness and better achieve stable operation.

The head of the industrial development department of Dashi said at the meeting that at present, it is necessary to find a more suitable pricing model to change the pricing negotiation between steel mills and mines from the original opposing game to a win-win pricing model for both parties, that is, the pricing model of futures price plus basis. With the development of China's iron ore futures market, this pricing model has become possible.

Zhou Weijiang, general manager of Galaxy Futures Steel Division, told reporters that at present, non-ferrous metals and agricultural products are priced with futures prices widely recognized in the market, and the trading of base prices can reduce unilateral price risk. For a long time, Chinese steel mills purchase iron ore in the mode of "long Association + spot", and still purchase iron ore according to the annual agreement with the mine, but the price is not fixed quantitatively, from using Platts index only in the early stage to pricing the iron ore spot in combination with the domestic index organization "Steel Union Index" in the later stage. among them, the price risk is higher. With the increasing maturity of iron ore futures in Dashang Institute, the multiple pricing model combined with derivatives has begun to popularize. It can be expected that the future basis trade, forward spot trade, rights trade and other models will reduce procurement costs for steel mills through multiple channels.

It is worth noting that many problems have been exposed in the production and operation of domestic mines, and the domestic mining market needs to break the old situation of traditional sales and seek a stable new sales model. Some market participants told reporters that basis trading has become a more recognized futures tool in the market.

With the continuous maturity of iron ore futures, domestic mines gradually realize the convenience brought by the basis trade. In the view of Cai Yongzheng, the chief futures analyst of Nanjing Iron and Steel Co., Ltd., the iron ore long-term association pricing, price fluctuations frequently, spot management forecast is difficult. Steel mills and mines are difficult to change the current situation of low pricing power, so they must adapt gradually. The liquidity of the domestic futures market is good, and the contract is gradually showing a certain degree of continuity. The transaction is settled and cleared in the exchange, and the transaction security is high. Domestic mines should actively participate in futures and options trading, so as to improve the ability of price prediction, risk management, hedge risk and lock in income.

A person in charge of an iron and steel trading company told reporters that there is a certain gap in the understanding and application of hedging in iron and steel industry chain enterprises, and some enterprises lack the concept of systematic hedging and mature hedging system.

He also said that it is important for companies to participate in the application atmosphere of hedging. The application of hedging tools in enterprises is imperative, but it requires the joint efforts of regulatory and industry leaders and professionals to improve the understanding and support of policies and regulators for enterprises to participate in futures hedging; at the same time, the application of hedging compliance is the premise, it should be carried out strictly in accordance with the plan to avoid speculation. "domestic mines are mainly concentrated in Anshan, Tangshan and Daixian, Shanxi, with strong regional representativeness. Domestic iron ores in these regions should be priced with futures prices and play a leverage role, so as to affect the price of imported mines."

Basis pricing
steel enterprises

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