Research On Financial Risk Based On Iron Ore Hedging

In 2018,China's GDP growth is between 6.5 and 6.7 percent,and social fixed asset investment will increase by 7 percent compared with 2017.It is estimated that crude steel consumption in 2018 will be about 779.16 million tons,an increase of 12.1 million tons and a year-on-year increase of 1.6 pcrcent.In 2019,the overall price of steel and profit level shifted downward,the range of fluctuations narrowed,and the pace of rise and fall accelerated.From January 2019 to October 2019,the operating profit of China's steel enterprises was 158.8 billion yuan,down 34.1%from the same period last year.The steel industry's product margin was 4.5%,down 3.1%from the same period last year.Compared with previous years,in 2019 the changes on demand for steel price fluctuations affect most directly,in addition,from the point of specific operational rhythm,the industry level vale mine ore price rise sharply,the market pessimistic expectations have repair,drive the volatility of spot prices,early may in Shanghai market thread,hot roll price reached 4150 yuan/ton and 4070 yuan/tons of their highs.Then,the growth rate of real estate investment slowed down and crude steel output reached new highs,which led to a downward trend in domestic steel prices.In terms of raw materials,iron ore,as one of the main raw materials of steel,plays a crucial role in the steel enterprises.However,due to the lack of iron ore resources in China,almost 98%of the domestic steel enterprises for iron ore raw materials by vale,Iron ore price fluctuations is bigger,vulnerable environnent,force majeure,such as political factors,such as a dam in Brazil,hurricane damage to the wharf,etc.Seriously affect the steel enterprise cost and profit,and the futures price discovery function,if used properly can hedge relevant financial risks for the companies,therefore the domestic steel enterprises need to use iron ore futures and other financial derivatives to transfer or hedge price fluctuation of raw materials brought about by the financial risk.This paper first introduces the research background and relevant theorics,and then analyzes how the hedging of iron ore futures can help enterprises avoid financial risks.Based on the above situation,this paper further analyzes the application of iron ore futures derivatives in Shagang group on the basis of the basic characteristics and financial risk analysis of steel spot market and futures market,the development history of iron ore futures at home and abroad and the analysis of index pricing mechanism.Shagang group,has a mature experience in hedging,by analyzing the basic operation situation of Shagang iron ore hedging,discuss the enterprise how to utilize the iron ore futures hedging operations,analyzes the operation mode for enterprises to evade what financial risk,and finally came to the conclusion that the purpose of this paper is to help more steel companies in a rapidly changing market,the reasonable use of iron ore futures hedging to avoid financial risk.