The Strategy Research Of Chinese Private Iron And Steel Enterprise Deal With Fluctuant Internation Iron Ore Price

Since the1990s, the rapid growth of construction, machinery and other industries haseffectively boosted the demand for steel products. China’s steel output has already rankedfirst place in the world. Along with the growth of steel industry, the private steelenterprises have been developing with fast pace in recent years. As of2010, there weremore than1,200steel making enterprises in China, among which more than700wereprivate steel enterprises. Iron ore as an important raw material for steel productionactivities accounted for40%of production costs. With the same sales price of final steelproducts, the cost of iron ore procurement directly affects the economic benefits of steelenterprises. China’s dependence on imported seaborne iron ore hit60%or more. Duringglobal financial crisis in2008, the seaborne iron ore prices slumped dramatically, resultingin huge losses to the steel enterprises purchasing big volume of high-priced iron ore beforecrisis. Up to more than70%of private steel enterprises suffered deficits.After global financial crisis, the pricing mechanism of seaborne iron ore hasundergone significant changes, breaking long-term benchmark pricing model and turningto quarterly/monthly/index pricing modes. The pricing periods have been getting shorter.The fluctuations on iron ore price brought enormous risks and uncertainties to the businessproduction and operation of private steel enterprises. Therefore, how to adopt and takeeffective strategies plays an important role to the sustainable development of private steelenterprises.Under this context, the thesis sets forth the main problems encountered to private steelenterprises when dealing with seaborne iron ore price volatility by analyzing themacroeconomic background of China’s steel industry. Combined with the author’s ownpractical experience of working at A Iron and Steel Group, the thesis analyzes the copingstrategies and major dilemmas under different pricing mechanisms. Also taking A Iron andSteel Group as an example, the author further presents the strategies of coping withseaborne iron ore price volatility.