Commodity price exposures of Chinese steel producers

Important financial risks facing Chinese steel producers include steel, iron ore and coking coal price risks. This thesis estimates the exposures to these financial risks for 31 publicly listed Chinese steel producers between 2008 and 2015. Furthermore, this thesis investigates the impact of a regime shift from long-term to short-term pricing contracts on iron ore exposures. Iron ore prices have become increasingly volatile since this regime shift. Steel producers are expected to be exposed to iron ore prices, one of the key inputs for steelmaking. As the world’s largest group of steel producers, Chinese steel producers rely heavily on iron ore imports, due to the undersupply of high quality iron ore from the Chinese domestic region. This study examines the commodity price exposures facing Chinese steel producers. In particular, it investigates their exposures to iron ore prices and how these exposures have changed since the iron ore pricing regime shift in 2010. The study finds that Chinese steel producers are in general positively exposed to steel priceand negatively exposed to iron ore price, but natural hedge exists between iron ore andsteel. In addition, the impact of regime shift on iron exposures only becomes significant when longer horizon data are analysed.