The Way To Evaluate And Avoid The Risk Come From Copper Ore Import In Gansu Province

Non-ferrous metal smelting in Gansu province is one of the sevenkey pillar industries, and Copper production industry is an important partof the non-ferrous metal smelting in Gansu province. In recent years, dueto increased demand for copper products and domestic copper mineralresources gradually exhausted, Gansu province rely more and more oncopper sand import to make up the shortage of raw materials forproduction of copper products.Gansu copper products manufacturing enterprises imports copperore mainly from Chile, South America. Therefore import sourcedetermines the Gansu Province copper ore imports to rely on maritimetransport. And copper sand transport belongs to the international dry bulkcargo shipping market. The international dry bulk cargo shipping marketis affected easily by the world economic environment, ship capacity,operation cost, hot money speculation, the exchange rate changes andother factors. Therefore, the international dry bulk shipping marketfreight price is often volatile. Facing the violent fluctuation of freight,most Gansu Province copper ore import enterprises choose to take risk byitself, as not using any risk aversion measures. Now in the case of coppermarket piling up in excess of requirement and profit margins aredeclining year after year, freight fluctuation risk may erode away a large share of profits. So this attitude may cause considerable loss to the GansuProvince copper ore import enterprises.In this paper, we use Analysis of value at risk (VaR) method toassess the risk of route C10-03(Pacific round-trip route), which is a partof BCI routes. Chile is the largest trading partner of copper ore imports ofGansu province and the Pacific round-trip route is the most nearest routeto the route that is used to import copper ore from Chile to Gansuprovince, that is why we choose the route C10-03. And because the BDIindex routes have no route from Chile to Chinese, so we can only useroute C10-03, and it is a common way when we use BDI to operate theocean freight derivatives. Then we come to a conclusion that The Gansucopper ore import enterprises face greater freight rate risk. And thoughthe calculation we have obtained the result of VaR. On the basis of riskassessment, we use JinChang Company as a example to discuss how touse freight derivatives to avoid freight price risk. And we hope thisdiscussion could attract the Gansu copper ore import enterprises’attention to the problem of freight price risk.