International Trade Report: Iron Ore and Steel Market Opportunities

This report provides a detailed analysis of the international trade landscape for iron ore and steel, focusing on market opportunities and strategic recommendations. It begins with an introduction to the global iron ore market and the significance of steel as a major product derived from iron ore. The report explores the current market dynamics, highlighting the importance of iron ore derivatives, the challenges in the iron market, and the competitive environment within the steel industry. It identifies opportunities for steel in the next two years, including the impact of China's steel production and the potential for portfolio diversification. The report recommends a fundamental trading strategy, outlines risk management practices, and concludes with a summary of key findings and references. Annexures provide additional data on global iron ore exporters, steel production, and trade statistics.

Running head: International Trade 1
INTERNATIONAL TRADE
Student Name
Institution

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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
ANNEXURE.................................................................................................................................................20

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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

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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

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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.

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This put steel on the edge with risky market situations. In order to reduce risk associated with
this market situation, many iron traders have devised ways to trade on iron ore as opposed to
finished product. This, therefore, implies that in the near future more focus will be on the raw
material than actually finish products. Companies focusing on the iron ore will curb the risk on
both the price and demand. In addition, iron ore demand when plotted on the graph show
continuous straight line pointing to increase in demand during the next two years. Australia is
one of the producers of the iron ore and one of the major consumers of iron ore is China which
currently is experiencing high demand despite plans to reduce importation of iron ore in the near
future due to pollution (Annex III).
1.4 Competition in steel industry
The steel industry continues to be dynamic with the increase in competition in the steel
market. It is worth noting that steel being product derived from iron ore, is projected to have high
demand with more shift to developing nations. It is estimated that in the next two years, the
demand for iron is most likely to rise as many developing nations urbanize. Most iron trading
countries have projected major scramble for the iron market in developing countries particularly
in Africa. For instance, BHP Billiton is a company that works in Liberia and uses iron ore
(World Steel Association 2017). This implies that most African nations that are on the verge of
developing infrastructure are in continuous demand for iron-related product and steel is leading
in this market. Moreover, iron ore is most likely to have high demand since it is estimated that
the demand is outpacing the amount of iron ore currently in the market. It is also expected that
China being a major producer of steel will cut down its steel production due to continuous call to
reduce air pollution by 2020. This implies that as the country reduces its steel manufacturing,

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many market players will take their position and our company needs to be a better place to
compete fairly. Therefore, increase competition for iron-related products will also give rise to the
demand for iron ore (Beich 2010).
1.5 Opportunity for steel in the next two years
Iron ore is needed for steel production or manufacturing and the amount of iron ore
determines the scale of production. In the next two years, the demand for the iron ore is
expected to rise by three percent in the global market and this presents an opportunity for good
investment. According to WTO (2014, pp 84), many countries have set development agenda for
coming years and one of the most important aspects of development is construction and
infrastructure development that is expected to increase. Increase in demand for construction
materials usually steel and iron raise the demand for iron ore which the company should be in
position to offer as seen in Annex V. In addition, focusing on iron ore makes the company be in
a better position due to increase in the number of mechanical industries that require huge tones of
steel. It is estimated that 98% of iron ore is used to produce still a proportion that is most likely
increase in the next few years. The rise in the market segment for iron ore has taken the path by
62% in 2014 coming to 1.43 million metric tons in 2019 (Annex VIII) (Unmesh 2008).
Example of iron ore and steel opportunity
One of the importers of the iron ore is steel is the United States of America and since
2916 has highly impacted the price of iron ore due to the campaign philosophy of the country’s
president. In his campaign strategy, the president seeks to increase infrastructure development
within the country and this prompted the increase in demand for iron ore in the international

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market. Previously the price of one ton of iron ore was trading at the cost of $37.91 in 2015 yet
upon his election the price of the iron ore role steadily to $ 90.25 in March 2016. This implies
that over the next two years until the end of 2019 the demand for iron ore is likely to remain high
in the international trade. Therefore taking a position in the global iron ore trade and to some
extent steel market, the company is most likely to benefit from these opportunities (Annex VI)
(Jayajit 2016).
1.6 Diversification of portfolios
Focusing on iron ore help diversify production within the next two years and this help
sail in the tricky global iron market. Focusing on iron ore is also believed to assist in portfolio
management of the company’s production of steel. Iron ore is the precursor for manufacturing of
primary iron and steel, iron ore offers an opportunity for our company to actually produce both
products. Diversification of production is particularly important due fluctuation in global iron
market prices. Some countries prefer iron ore than the already processed products of the irons
such as steel and this is due to the ability of the company to produce the product of their own
from the iron ore. In the current international trade environment, one of the risk mitigation
strategies that the organization seeks to use is diversification of portfolios. Iron ore necessitates
the capability of diversifying the portfolios since iron ore allow production of many different
products (Nekrasov 2014, pages 24-26).
The recommended Trading strategy
The most appropriate trading strategy is fundamental trading strategy since the trading
strategy takes the fundamental trading factors such as volatility of the steel into account. The

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screening criteria for the steel in the coming two years as per the trading the strategy are the
growth of the market and the profitability of the steel trade. With this, trading strategy, the most
considered factor is the international trade opportunities that are projected within the next two
years. The fundamental analysis of the economic indicators and prevailing conditions of the
international trade on steel and its primary iron ore shows basis and necessity of drawing trade
strategy. The organization purely aims to reach target goal of $ 50 million by the end of 2018
and this should represent 20 % increase from current trade. In order to take the necessary
position at the international steel trade, trade strategy is necessary for ensuring that all the
opportunities that are presented in the international trade (POSCO Research Institute 2016, pp
99-103).
Assessment through Paper trading
The organization has confidence in starting high steel trade in the international trade with
ready paper trade assessment. The assessment also allows the business to trace the trade signals
that allow entry into the market without hesitation. The organization has the system put in place
that enables evaluation of the whole trade system and crosses checking the system for its
capability to produce good trade result or returns. The assessment is also meant to reduce
mistakes that committed at the execution of the plan. The organization needs them to do the
paper assessment with the capability to carry out the backtesting of the trading strategy for the
organization (Pardo 2008, page 18).

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Preparation for trade
The organization has to put in place the measures that show that the organization is ready
to take part in the global trade. With the current technological application of inventory
management system and record keeping, the organization putting in place all the technological
capabilities in the management of the trade instruments such as trade negotiations is necessary.
The organization management mental preparation for the trade is equally important since it
points to the ability to evaluate trade activities in the trading period. Moreover, the management
needs to be aware of the competitors and their capabilities which is enabling the organization to
outcompete them. It is worth noting that trade preparation also takes into account all the
necessary technical ability of the trading strategy to perfume upon implementation (Low & Tan
2016).
Goals of the trade
The main goal of the trading strategy is to exploit the opportunity international steel trade
that is expected in the next two years. With the downside reduction of the steel production China
a major trader of steel and iron products in the international trade, there will be more
opportunities for taking the position in the global steel trade and this will be sufficiently
considered. As an organization, the trading strategy seeks to exploit this opportunity so as to play
a major role with respect to steel products. The organization intends to reach a trade goal of $ 50
million by the end of 2018 and this should represent 20 % increase from current trade. Moreover,
as pointed by the United States is a larger importer of steel in the global trade, there is most
likely to be a steel deficit in the next two years. Despite the goal-oriented strategy, the

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organization also sets the risk mitigation or management strategy that will prevent or minimise
risk within the international iron trade (Samuelson 2001, pp 1204–1214).
High impact release analysis
The company focus on various economic realizes information that shows the economic
situation with growth and opportunity. According to Ruby and Stanway (2015), in the next two
years, the demand for steel is most likely to increase following the decision of China to use most
steel produced domestically. China being a major producer of steel, China offers low price
making competition impossible for other countries. The move by China to domestically consume
its steel raises the opportunity for steel from other countries. The impact of this move, however,
can be felt on the infrastructure development with the country as there is downside risk (GITIF
2015, pp 39). The global market for iron ore and steel, in particular, is expected therefore to
increase (Annex VII). Australia the is also a major producer of iron ore and will also be the
beneficiary of this steel international trade.
It is estimated that there will be steel deficit in the coming two years and this is according
to the USA which is the largest steel importer. Our main focus will be in such countries such as
the United States of America which is a major importer of steel. The sources of steel deficit
basically come from China steel production cut and urbanization of most developing countries.
On the other hand, the main deficit is most likely to come from the increasing demand for major
traders in the global trade and this is indicated low steel importation as revealed in Annex 1
(MMTC, 2015).

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Taking position in market and exiting the market
1. Trade exit
It is expected that the organization will make a profit from the trade and this is the main
goal of the business given the prevailing conditions in the global steel. The business has put in
place stop-loss strategy and take-profit strategy. The rule that will be used in the stop-loss
strategy includes setting stop-loss below the current bid price of the steel. Secondly, the take-
profit strategy has some similarities in that they are losses are converted into market orders to
sell when the point is reached. The execution of the take-profit also adheres to the same as the
take-loss strategy (Pardo 2008, page 19).
2. Trade Entry Rule
We rely on the steel market indicators that include demand for the steel and more so the
demand for iron ore which is an important commodity in the steel industry. Firstly, steel deficit is
core trade signals for the trade entry during the anticipated trade period estimated in two years
time. For instance, as the USA predict that beginning January 2018 the there will be more deficit
in steel tonnage available in the international trade leading to more demand for steel and
consequently iron ore. This is particularly important for trade entry since its most likely open for
trade opportunity for the commodity. The rise in demand is further listed as another trade signal
which dictates that upon the increase in demand the organization should be already in possession
of enough iron ore.

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Risk level
The risk level during the trade is set at the maximum level of 2% considering the risk
tolerance of the organization. This implies that throughout the trading periods the organization
anticipates that losing only 2% in a single trade is important for international, trade. By this
level, the trade will be under control with most of the focus on gain as opposed to losses. In
addition, the organization controlling its loss the opportunities in the trade are properly utilized
and withstand dynamic steel trade environment.
Records keeping
The trade has robust economic records that need proper management record keeping
system. The organization will apply currents ICT technologies in the management of the records
so as to maintain its trade objectives during the trade. Keeping both physical and electronic
records allow analysis of the profit and losses to ensure that there are complete business
processes in the trade. The record keeping, in addition, enable cross-checking of both times for
trade and outcome which are important for evaluating attainment of goals. Most of the
conclusion is then written in a journal for later reference when the need arises. The company is
determined to utilize its robust technologies so as to maintain the record in trade.
Challenges in the iron ore trade
The global iron ore trade also has some challenges that are most likely to affect the trade.
The number one is the pollution that is believed to be attached to iron ore processing and this is
the primary reason for the reduction of the iron consumption in China. Withholding external iron
ore trade for a cutting of air pollution by China is most likely to have the impact in the trade

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being the major trader on this commodity. The first scenario is most likely to be over the
capacity of the iron ore available in the international trade since the amount that was absorbed by
China remain in the international trade. Secondly, after the two years increase in demand for iron
ore, there is uncertainty in the like hood that the both price and demand for iron ore will be
affected in the international trade. This is due to the fact that is quite unknown the position of
China as a country with respect to its iron or steel global trade (U.S. Department of Commerce
2014, pp 26).
Risk management
The dynamics of steel and iron ore trade in the international trade presents challenges that
are most likely to cause losses rather than profits. This is due to the volatility of the trade and
prevailing marketing environment in the international platform. This necessitates the
development of risk mitigation strategy the or risk management strategy that will cub any losses
associated with the trade. Firstly, development or setting risk level plays a critical role in the
trade. The risk level determines the market exit strategy that operates on stop-loss rules. The 2%
risk level rule prevents the organization from continuing in trade despite the apparent loss.
Moreover, the organization will critically observe its trade signals before investing or entering
the market. To prevent the challenges resulting from the volatility of trade, the organization
further make clear intention to diversify its portfolios by making use of iron ore as the main trade
commodity (Ernie 2003).

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Conclusion
In conclusion, global steel trade offers a competitive and dynamic environment that
presents different challenges to traders. Various countries are players in the trade with China
playing a significant role in the trade. Equally iron ore has gained interest in trade with most
traders considering iron ore as the future commodity with significant importance in the trade.
With this dynamic trading environment, a good trade strategy is important as it highlights the key
aspects and condition for maximization of the trade benefits. Risk level with risk management
strategy is another important aspect of steel or iron ore trade.
References
Beich, T, 2010, Trading Strategy - Learn a Simple Trading Strategy. gogbank.com.
Ezell, SJ, 2011, Understanding the Importance of Export Credit Financing to U.S.
Competitiveness, Information Technology and Innovation Foundation (Jun. 2011). pp 7.
Ernie, C, 2003, Algorithmic Trading: Winning Strategies and Their Rationale, Wiley, 2003

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The government of India Ministry of Commerce and Industry (GITIF), 2015, Department of
Commerce Foreign Trade Policy, 2015 – 31st March 2020, (Apr. 1, 2015) at 39.
India National Steel Policy, 2012, GOI Ministry of Steel Major Policies: National Steel Policy
2005
Jayajit, D, 2016, Export duty on high-grade iron ore to remain unchanged,” Business Standard
(May 13, 2016)
Low, RKY, & Tan, E 2016, The Role of Analysts' Forecasts in the Momentum Effect.
International Review of Financial Analysis.
MMTC, 2015, Global Tender for Export of Chrome Ore and Chrome Concentrate Sep. 9,
Nekrasov, V, 2014, Knowledge rather than Hope: A Book for Retail Investors and Mathematical
Finance Students. 2014, pages 24-26
Nations Encyclopedia, 2016, Mining - Niger - export, sector". www.nationsencyclopedia.com.
Retrieved 2017-09-18.
OECD, 2015, The Capacity Outlook for the Global Steel Industry: Preliminary OECD Estimates,
presented at worldsteel ECON meeting, Madrid, 9 September 2015.
POSCO Research Institute, 2016, Asian Steel Watch (January 2016) at pp 99-103.
Presidential Proclamation, 2016, World Trade Week, 2016. whitehouse.gov. Washington, D.C.:
White House. May 13, 2016. Retrieved April 11, 2017.

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Ruby L, & Stanway, D, 2015, Chinese Steel Exports to Stay High This Year – Industry Group,
Reuters (Apr. 29, 2015).
Pardo, R. 2008, The Evaluation and Optimization of Trading Strategies. J. Wiley & Sons, 2008,
page 18.
Samuelson, P, 2001, A Ricardo-Sraffa Paradigm Comparing the Gains from Trade in Inputs and
Finished Goods. Journal of Economic Literature, vol. 39, no.4,pp 1204–1214.
Shivom S, 2012, India bans iron ore fines export from captive mines, available at:
www.mineweb.com (Sep. 24, 2012)
Sohrab, D, 2014, New Government in Place, Everybody Has Ideas for Reviving Indian Steel,
Metal Miner (May 30, 2014).
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March+2017+Crude+Steel+Production+Table.pdf.

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WTO, 2014, 2014 Trade Policy Review Report: China, pp 84.

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ANNEXURE
Annex I
(U.S Department of Commerce, 2014)

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Annex II: China’s Steel trade
(WTO 2014)
Annex III :

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( Ezell 2011)

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Annex IV: Global Iron Ore Exporters
( MMTC 2015)

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Annex V: Global Steel Production and Export
(POSCO Research Institute, 2016)

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Annex VI: World steel compared to other commodities
(OECD 2015)

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Annex VII: World crude steel production
(World Steel Association 2017)

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Annex VIII: Steel export and Import
(World Steel Association 2017)