It is urgent for the steel industry to improve its risk management capability

In the process of enterprise development, from small to large, from domestic to foreign, each stage of development should have appropriate business philosophy and development strategy, which is a process of constant adjustment and optimization.The same goes for risk management — be realistic and keep pace with The Times. In the past, we dealt with market risks by relying on the weather, on the game between the upstream and downstream of the industrial chain, and on administrative intervention；the government actually became the main undertaker of hedging risks. For enterprises, if the cost of raw materials such as structural steel pipe is low and the price of finished products is high, increasing the production of horsepower is a good choice;The high cost of raw materials depends on the government to provide preferential policies to ensure the level of profits.

For China’s steel industry, the traditional risk management concept and mode do not match its size and international status.Enhancing the awareness and ability of risk management is the premise and basis for the steel industry to achieve high-quality development. China’s steel industry to achieve a large and strong derivatives market can play a crucial role.Through the transfer of risks in the derivatives market, steel pipe suppliers can effectively ensure the stable operation of enterprises, promote the win-win situation of all parties in the industrial chain and form a long-term sustainable and stable relationship, thus improving the management ability and level of the whole industry.

First, in terms of price discovery, an open and transparent price has been formed. In December 2017, the price of round steel pipe recovered to the level of 4,980 yuan/ton in February 2011, corresponding to the platts index of 72 dollars/ton and 193 dollars/ton, a decline of 63%. Rebar and iron ore prices expanded to 8.4 from 3.3.In the first eight months of this year, the correlation between iron ore futures and spot prices and the platts index remained above 90 per cent, and the hedging efficiency exceeded 80 per cent.At the same time, iron ore futures are more efficient in discovering prices and are sensitive to various market information, which can provide timely price signals for enterprises’ production and operation.
Second, more and more industrial enterprises participate in futures trading and use futures market for risk management.Up to now, more than 1000 steel industry chain enterprises have participated in the futures market of coal and coke mines, among which 8 of the top 10 steel mills in China have participated in futures trading, and the market structure of mild steel tube has been increasingly improved.