Study On Relations Between Iron Ore Importing Price And Exchange Rates

Iron ore resources are relatively poor in China, and more than50%of the iron orematerials need to be imported. So the changes of iron ore importing price affect thetotal cost of Chinese steel enterprises directly, and influence the profit of steelenterprises.There is a lot of domestic literature about iron ore importing prices which arestudied mainly from the supply and monopolized industry. However, this paperdiscusses the situation of iron ore importing prices in China from a different point-theexchange rates. This paper first makes a qualitative analysis to the movements ofinternational iron ore prices and the exchange rates, and then, it makes a quantitativeanalysis to the relations between iron ore prices and the exchange rates. Based on theCointegration test, it finds that there is a stable relationship between iron oreimporting prices in China and the exchange rates of AUD and BRL. By use of thisstable relation, China’s steel enterprises can use foreign exchange contracts to controlthe increasing cost of importing iron ore.This article mainly divided into five parts. The first part introduces thebackground and significance of this study. It concludes and analyzes domestic andforeign literatures about international iron ore prices and exchange rate risk. In thesecond part, it analyzes the movement of international iron ore prices, the condition ofthe iron ore market in China and the situation of profits in China’s steel industry. Thethird part summarizes the factors that influence the international iron ore prices. Thefourth part analyzes the exchange rate factor which is the key point of all factors thatinfluence the international iron ore prices. It makes a quantitative analysis to therelationship between iron ore prices and exchange rates in the fifth part. At last,according to the analysis of the above, it puts forward the foreign exchange contractwhich is to buy appreciating currencies to control the costs of China’s importing ironore.