Preparati Trading Strategies for Iron Ore and Steel

Running head:
International Trade 1
INTERNATIONAL TRADE
Student Name
Institution

International Trade 2
Table of Contents
Introduction................................................................................................................ 4
Background Information............................................................................................. 4
1.1 Focus on Iron Ore................................................................................................. 5
1.2 Iron ore derivatives.............................................................................................. 6
1.3 The challenging iron market................................................................................. 6
1.4 Competition in steel industry............................................................................... 7
1.5 Opportunity for steel in the next two years..........................................................8
Example of iron ore and steel opportunity..............................................................8
1.6 Diversification of portfolios................................................................................... 9
The recommended Trading strategy..........................................................................9
Assessment through Paper trading.......................................................................10
Preparation for trade............................................................................................. 11
Goals of the trade.................................................................................................. 11
High impact release analysis.................................................................................12
Taking position in market and exiting the market.................................................13
1. Trade exit....................................................................................................... 13
2. Trade Entry Rule............................................................................................ 13
Risk level............................................................................................................... 14
Records keeping.................................................................................................... 14
Challenges in the iron ore trade............................................................................ 14
Risk management................................................................................................. 15
Conclusion................................................................................................................ 16
References............................................................................................................... 16

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ANNEXURE................................................................................................................ 20
Annex I.................................................................................................................. 20
Annex II: China’s Steel........................................................................................... 20
Annex III :.............................................................................................................. 21
Annex IV: Global Iron Ore Exporters......................................................................23
Annex V: Global Steel Production and Export........................................................24
Annex VI: World steel compared to other commodities........................................25
Annex VII: World crude steel production...............................................................26
Annex VIII: Steel export and Import......................................................................27

International Trade 4
Introduction
Global iron ore market presents some challenging market environment that needs good
international trade strategy. Steel is a commodity that is derived from iron ore and is one of the
major products of iron ore that has a huge stake in the global market. Steel is mainly used in the
manufacturing of construction materials, vessels, mechanicals, and infrastructure. This leaves no
doubt that steel is a major player in the international trade. Current iron ore market is also
dominated by the idea of trade on derivatives usually iron ore derivatives. There are a number of
reasons that make company focusing on iron ore ideal for company. This includes trade on iron
ore derivatives, offsetting production risk and setting the fairground for competition in
international trade. Steel market is projecting wide opportunities, especially for iron ore. The
organization sets the basis for exploiting this steel market opportunities so as to make a
reasonable profit within these two years.
Background Information
The organization trades in the steel as the main commodity of trade with international
business focus. Though the organization mainly focuses on steel considerable attention is drawn
to iron ore trade and this is due to the shift in iron ore as compared to iron products such as steel.
This report exploits the possibilities of the trade opportunities in the iron ore and steel trade with
the gained strategies to strike any opportunity available. In order to remain a key player in the

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international trade, the organization highlighted the various, opportunities and reasons for
focusing on iron ore more than steel that is the company’s main commodity of trade. Well, all
the indications point to wider trade opportunity for trade for both steel and iron ore. The report
also shows the impact of some major steel or iron ore traders such as China decision to reduce
steel production limiting it's for to local consumption (Ezell 2011, pp 7).
1.1 Focus on Iron Ore
Iron ore being raw material for iron, steel and other derivatives of iron ore makes the
material more traded than other commodities in the international trade. China is a major steel
producing country given that the country has the largest steel producing companies. Many steel
traders are shifting their focus to China and other developing nations thereby increasing the iron
ore demand both in these countries and globally. By 2012 the iron ore imports were approximate
$158 and this is declining by 7.8% within the period of 2015-2016. This raises the amount of
iron ore needed by major iron ore importers in the global iron market. Of all the iron ore
commodities that are exported or traded in the international trade, only 0.4% goes in Africa. This
leaves more trade opportunities in Africa that major players have drawn their attention to. Most
iron traders in the international trade are expected to shift their focus on Africa due to the
development especially in infrastructure development that is ongoing since 2016 (Nations
Encyclopedia 2016).
Major focus on the most larger importers of the iron ore indicates that China is the largest
importer of iron ore with 67.8% of the global iron ore imports and this represents $57.1 billion.
China is followed far by Japan which imports 8.7% of the global export iron ore representing
$7.3 billion. Annex 2 shows the difference in China's exports and imports of steel in the

International Trade 6
international trade and Annex VI. It is expected that in the next one year more iron ore importers
will likely to come in the market making the trade opportunities available in the market.
Secondly, trade on steel which is a product of iron ore presents an enormous trade opportunity in
global trade. This is due to the increasing demand for steel and to envisage the steel deficit in the
international market China becomes the primary case (Low & Tan 2016).
1.2 Iron ore derivatives
Iron ore derivatives are the most traded commodities in the iron market and focusing on
the iron ore means more profit. Most iron traders are currently shifting their focus on iron ore
derivatives as risk mitigation to curb volatility of the iron market. Though iron ore derivatives
are still unpopular in some countries, the iron market is on the rise with the concentration of iron
ore derivatives than any other iron-related product in the international trade. Many steel
producing companies are signing trade contracts that will utilize iron ore in fixing steel input cost
in the steel market. Currently, the market for the iron ore derivatives measure is more than the
actual physical iron ore in the international trade. Back in 2013, the market value of the iron ore
derivative was approximately 60Mt outpacing the tricky iron ore in market growth. This implies
that by our company focusing iron ore the company will be in good position to trade in iron ore
derivative in the coming two years where the price of the iron products is expected to rise due to
demand (Pardo 2008).
1.3 The challenging iron market
The iron market is a tricky market with fluctuation in the market and many countries are
working to reduce their steel manufacturing due to high pollution coming from these companies.