The Analysis on the Sensitivity of Steel Enterprise to Iron Ore Price

Abstract

In order to analyze the different influences on Chinese domestic and abroad steel enterprises from a rise in material prices, this paper mainly researches on the sensitivity of major steel companies' cost to iron ore price and coke price. It applys sensitivity analysis to show the dependence of enterprise on iron ore and adapts panel data model to make a clear comparison. Empirical results present that the other three Chinese steel enterprises, except Wu steel, are relative more sensitive to price of iron ore than their Japanese and Korean counterparts. The sensitivity of most Chinese steel enterprises results in an over unit increase in cost with an unit rise in price of iron ore. Besides, the empirical results point out that coke price is irrelevant on cost of object enterprises and that price of coke should be eliminated from this model. In the viewpoint of this paper, business scope and technological level mainly contribute to the gap in the sensitivity of different steel enterprises. Additionally, drawing on the experience of Japanese steel industry, it gives three recommendations.