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From the price to the base price, the steel industry opens up a new pattern

From the price to the base price, the steel industry opens up a new pattern

 “The mine and steel mills directly trade iron ore, and the quotation can be based on the price of DCE iron ore futures plus a mutually agreed basis. The volatility of iron ore prices is reversed through the futures market, while the fluctuations in basis prices are relative. The smaller, greatly reduced the risk of the company.” said Wang Qiang, Strategic Account Director of Greater China at Cargill’s Investment Metals Division. At present, the basis price model has been widely spread among steel mills. According to industry sources, the basis trade can meet the negotiating needs of both sides of the trade, enabling enterprises to further integrate risk management with production and management, so that companies can use futures prices without directly participating in futures, and use the derivatives market for companies to expand their operations. Patterns and risk management provide new paths.

Change in pricing model As a trade method based on futures prices, basis trade decomposes the fixed price of the upstream and downstream companies' original transactions into the futures price plus the basis price. Enterprises can combine their own needs, choose the best to become the basis for the formulation or point price, and according to the market flexibility in the selection of the point price and delivery date, the use of on-site futures operations to transfer the spot market price risk to the futures market, and personalized appeal Trade through bases is well represented.

 

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