Core Viewpoint - The article discusses the increasing demand for risk management among Chinese enterprises due to challenges such as raw material price fluctuations, supply chain disruptions, and tight funding. The futures market is highlighted as a crucial tool for these enterprises to stabilize operations and manage risks effectively [1][2]. Futures Market as a Stabilizing Anchor - The futures market serves as an important tool for enterprises to mitigate risks associated with price volatility and to optimize operational strategies. It provides a price discovery mechanism and risk management functions that help businesses lock in costs and stabilize profits [2][3]. Innovations in Risk Management - Huang Junshu, Chairman of Guotou Futures, proposed three innovative solutions: optimizing product supply, enhancing industry adaptability, and promoting ecological collaboration. These strategies aim to address the challenges faced by the futures market in supporting the real economy [1][6]. Case Study: Red Date Futures Hedging - A case study on the 2024 red date futures hedging illustrates the effectiveness of futures tools. A company successfully used a unique hedging structure to create a risk-hedging loop between the spot and futures markets, stabilizing its operations [3][4]. Addressing Challenges for SMEs - The article emphasizes the high costs and credit risks faced by small and medium-sized enterprises (SMEs) in utilizing hedging tools. Guotou Futures has developed innovative business models to provide tailored solutions for these enterprises, including fixed-price swaps and basis swaps for iron ore [4][5]. Enhancing Risk Management Capabilities - The iron ore RMB swap model is designed to be a low-cost, high-efficiency risk management tool for SMEs, allowing them to stabilize procurement costs and enhance competitiveness. This model also improves transparency and reduces credit risks in off-exchange derivative transactions [4][5]. Need for Comprehensive Risk Management Services - Enterprises express a need for one-stop risk management services from futures companies, including training, team building, and risk exposure analysis. Innovative business models are also sought to lower hedging costs and encourage participation in the futures market [5][6]. Identifying and Overcoming Market Barriers - Huang Junshu identifies three main barriers: insufficient adaptability of risk hedging tools, lagging industry adaptability, and a lack of a collaborative ecosystem. Addressing these issues is crucial for enhancing the effectiveness of the futures market in serving the real economy [6][7]. Recommendations for Improvement - Recommendations include optimizing the product supply system, enhancing educational initiatives, and promoting collaborative mechanisms within the industry. These steps aim to create a more robust and effective futures market that can better support the real economy [6][7]. Importance of Trader Education - Trader education is essential for improving enterprises' understanding of the futures market and its tools. A systematic approach to education can help businesses recognize the benefits of risk management through futures [7][8]. Practical Training Initiatives - Guotou Futures has implemented customized training programs to meet the specific needs of different industry clients, which has received positive feedback and recognition from customers [8].

Report Industry Investment Rating - Not provided in the report Core Viewpoints - In the iron ore trade and production sectors, price volatility risk is one of the core challenges faced by enterprises. Financial derivative tools such as futures, swaps, and options provide diversified means for enterprises to manage price risks or optimize supply chain costs. The report analyzes from three aspects: tool types and selection, application scenarios, and operation processes [2][6] Summary by Directory I. Market Environment and Tool Selection Analysis - **Choose domestic futures when market transparency and liquidity are high**: When enterprises need high transparency, active trading, and sufficient liquidity in the iron ore market, the Dalian Commodity Exchange's iron ore futures are an ideal choice. In a stable supply - demand relationship and without major market shocks, enterprises can use standardized contracts and centralized trading mechanisms for hedging or speculation [7] - **Choose swaps or over - the - counter transactions when personalized needs are prominent**: If enterprises have special trading needs such as customizing non - standard contract terms, swaps or over - the - counter transactions are more advantageous. They can negotiate contract details with counterparties to accurately hedge risks [8] - **Tool selection under specific market trends**: - **Unilateral price increase trend**: Iron ore demanders can use domestic futures for buy - side hedging to lock in future procurement costs [9] - **Unilateral price decrease trend**: Enterprises holding a large amount of iron ore can use sell - side hedging in domestic futures to offset losses from price drops [11] - **Highly volatile and uncertain price**: Swaps or over - the - counter transactions can be used to negotiate stable price settlement methods, and can be combined with a small amount of domestic futures for dynamic position adjustment [12] II. Analysis of Iron Ore Futures, Swaps, and Over - the - Counter Hedging Scenarios and Operation Plans (1) Analysis of scenarios and operation plans for hedging with iron ore futures - **Suitable scenarios**: Physical delivery, hedging for domestic port spot prices, and pursuing standardized and highly liquid trading [14] - **Operation process**: - **Pre - trading preparation**: Risk assessment, fund planning, and contract selection [17][18][19] - **Trading process operation**: Hedging operations and risk management (setting stop - loss and take - profit intervals) [20][21] - **Post - trading management**: Closing positions or physical delivery, and evaluating the hedging effect [23][24] (2) Analysis of scenarios and operation plans for hedging with iron ore swaps - **Suitable scenarios**: International market trading and US - dollar - denominated needs, the need to customize contract terms flexibly, and long - term hedging [25] - **Operation process**: - **Selecting trading counterparties**: Credit assessment and communication of cooperation intentions [27][28] - **Negotiating contract terms**: Determining core terms and setting risk terms [29][30] - **Executing and monitoring the transaction**: Strictly fulfilling contract obligations and closely monitoring the market and counterparties' performance [31][32] - **Transaction settlement and follow - up management**: Completing settlement operations and maintaining good relationships with counterparties [35][36] (3) Analysis of scenarios and operation plans for hedging with options - **Suitable scenarios**: Avoiding price increase risks, avoiding price decrease risks, hedging basis trade risks, and hedging in high - uncertainty markets [37][38][39] - **Operation process**: - **Defining hedging goals**, **analyzing the market environment**, **selecting option contracts**, **determining option positions**, **building and monitoring positions**, and **closing positions or exercising options** [40][41][42] - **Specific operation plans for different scenarios**: - **Avoiding price increase risks**: Buying call options. For example, a steel mill can lock in the purchase cost while retaining the opportunity for low - price procurement [47] - **Avoiding price decrease risks**: Buying put options. A trader can lock in the selling price while retaining the opportunity for inventory appreciation [59] - **Hedging basis trade risks**: Traders need to choose to sell call or put options according to the spot position and the steel mill's price - setting operation [70] - **High - uncertainty market**: Using a straddle option combination to profit from significant price fluctuations in either direction [83] - **Risk management and precautions**: Setting stop - loss and take - profit points, diversifying investments, monitoring market volatility, choosing appropriate option contracts, understanding exercise and delivery rules, and complying with policies and regulations [87][88] III. Comparative Analysis of Different Tools and Combination Strategies (1) Comparison of core characteristics of different derivative tools - **Futures**: High standardization, high liquidity, cost structure of margin + handling fees, low credit risk, suitable for large - scale risk hedging of main iron ore varieties [91] - **Swaps**: Low standardization, medium liquidity, cost structure of spread + service fees, credit risk depending on counterparties, suitable for non - standard ore varieties [91] - **Over - the - counter options**: Low standardization, low liquidity, cost structure of premium + exercise fees, high credit risk, suitable for "insurance - type" hedging in extreme market conditions [91] (2) Combination strategies: - **Futures + options**: A steel mill can buy futures contracts to lock in the basic cost and buy call options to retain the potential benefits of price drops [91][92] - **Futures + swaps**: A trader can conduct arbitrage by taking advantage of the price difference between the domestic futures market and the Singapore iron ore swap market [97][98]

1. Report Summary - The probability of the divergence between domestic and foreign price trends of iron ore in 2025 is extremely low [4][28] - The supply and demand of iron ore will increase simultaneously in the coming months, with limited pressure to accumulate inventory, and the overall contradiction is not prominent [3][40] - For the arbitrage strategy of long domestic and short foreign, it can be implemented at any time; for the unilateral strategy, it is recommended to buy on dips instead of selling on rallies [6][50] 2. Key Points of Each Section 2.1. Tracking of Domestic - Foreign Price Spread Arbitrage - Futures basis convergence leads to the price convergence of the main contract of DCE iron ore futures and the spot price of imported iron ore [11] - The variable part of monthly import cost is approximately equal to the swap price multiplied by the exchange rate, resulting in the convergence of DCE iron ore futures and (swap price * exchange rate) [11] - The domestic - foreign price spread (DCE main contract - swap * exchange rate) is the observed indicator and actual position of the long domestic and short foreign strategy [11][21] - The historical periods of divergence in domestic - foreign price spread are 2021 Mar - Jul, Oct - Dec and 2022 Feb - Mar, mainly due to non - market factors leading to the weakness of DCE iron ore futures [14][15] - The probability of divergence between domestic and foreign price trends of iron ore in 2025 is extremely low because there is no strong demand for administrative production cut, and it is difficult for domestic production to lead to long - term losses of imports [21][28] 2.2. Outlook of Iron Ore Market in Summer - The demand is the dominant factor in the iron ore market. As of June 12, the daily pig iron output decreased slightly but remained at a high level, and it is expected to increase slightly until early August [29] - The blast furnace profit usually changes one month ahead of the pig iron output. Currently, the blast furnace profit of steel mills is still increasing, which is consistent with the increase in pig iron output indicated by maintenance data [31] - The cumulative global iron ore shipments in 2025 reached 68,170,000 tons, an increase of 104,000 tons year - on - year; the cumulative shipments from Australia and Brazil reached 55,854,000 tons, an increase of 351,000 tons year - on - year [34] - The overall inventory of domestic iron ore has been decreasing and started to accumulate slightly in June, with less pressure on inventory compared to last year [35] - The supply and demand will increase simultaneously in the coming months, with limited pressure to accumulate inventory, and the overall contradiction is not prominent [3][40] 2.3. Summer Strategy Recommendations for Iron Ore - The domestic - foreign price spread (DCE main contract - swap * exchange rate) tends to converge upward as the DCE main contract expires [50] - The historical reasons for the downward fluctuation of the domestic - foreign price spread are mainly non - market factors leading to the weakness of DCE iron ore futures [50] - The risk of DCE iron ore futures (domestic) being significantly weaker than the swap (foreign) lies in production cut of crude steel and abundant domestic production, which are unlikely to happen at present [50] - In terms of single transactions, the near - term can enter the market at any time; in terms of asset portfolio, referring to the annualized return, it can replace other arbitrage portfolios [50] - In terms of time, there is no need to time; it can also enter the market when the import profit (one of the tracking indicators) is low [50] - In the long - term, the supply and demand in 2025 will be in tight balance, the price center is difficult to decline significantly, and the trend of inventory accumulation is expected to form until the fourth quarter. It is no longer recommended to sell on rallies but more inclined to buy on dips. It is more cost - effective to start deploying long positions around $90 [50] - In the short - term, it is not expected to decline significantly as the time when pig iron reaches its peak and then trends downward is still far away; due to the rapid increase in supply, the fundamental of Sep contract of iron ore tends to weaken, so the upside is also limited. It is recommended to gradually establish long positions around 650 for far - term contracts, and sell out - of - the - money call options when the Sep contract is above 830 [51]

Core Insights - The forum focused on how derivative tools can support the stable operation of the real economy amidst new international trade dynamics [1] - Experts discussed the significant role of the derivatives market in serving the real economy and the need for innovative risk management solutions [2] Group 1: Derivative Market Insights - Professor Li Zhengqiang emphasized the importance of the derivatives market in supporting high-quality economic development and the legal requirements for its functionality [2] - The chairman of Hainan International Clearing House, Feng Bo, highlighted the rapid growth of the OTC derivatives market, with over 230 members and a cumulative clearing scale of nearly 200 million tons, valued at approximately 4 billion yuan, showing a growth rate exceeding 200% [3] - The introduction of iron ore swaps by Hainan International Clearing House has gained traction as a risk management tool, with over 50 million tons cleared in just over a month [4] Group 2: Challenges and Opportunities - The current environment has increased risks in the bulk commodity sector, making it difficult for enterprises to maintain stable operations and manage profits effectively [3] - The forward market faces significant issues, particularly regarding reliance on corporate credit and the lack of a systematic risk prevention framework, which can lead to widespread impacts in case of defaults [5] - Hainan International Clearing House aims to continuously develop new OTC derivative tools to meet the real needs of enterprises and enhance service capabilities [5][6]