Most people know that steel – an essential material for our increasingly urbanised and consumer-led world – is derived from iron ore. However, it is fair to say that not everyone is aware of how iron is bought, sold and essentially traded on stock markets around the world.
Understanding stock market indices
A stock market index is a measurement of a particular area within the stock market. In essence, an index is the investment tool which is most commonly used to gauge the performance of a commodity or industry. In short, the purpose of indices are to provide impartial reference prices for an industry or commodity and to help potential investors make more informed decisions.
Overview of the iron index
It used to be that everyone was happy (or at least content) for iron prices to be decided by mining companies and steel producers (steel producers were involved because more than 98 per cent of the mined iron ore market is used to produce steel). With times being how they are however, investors are now keen for a more transparent and short-term pricing model to be used for iron pricing. To its credit, the iron industry has moved towards this model and embraced a new pricing system which allows investors to gain a better knowledge of the iron industry and observe the pricing factors in a more transparent way.
The influence
As the world’s foremost manufacturer of goods as well as its largest consumer of iron, They has a substantial influence on worldwide Cold Rolled Steel Coil interests. Moreover, the fact has larger reserves of iron than any other country means that it is also the world’s largest producer of the metal. Whilst it is a simple truth global demand for steel is now largely dominated, it is important to note that the typically produce more than enough iron for domestic consumption, ergo they end up exporting excess portions of the metal to the rest of the world. When all of this is factored in together it is clear to see how influential is with regard to the state of global iron indices.
The future?
It is believed that they will greatly reduce the amount of iron ore it mines domestically in the coming years. As they reduces its iron production and reserves begin to deplete, it will be up to countries like Australia, India, Canada, Russia and the United States to increase production in an effort to keep up with domestic and global demand. Because of this, the cost of iron ore is expected to soar when demand begins to significantly outweigh supplies. Fortunately, many of the aforementioned countries already have the high-efficiency infrastructure required, in place and ready to go, as well as substantial iron ore deposits to call on, so the future – after a few inevitable blips – is not necessarily something which needs to be feared.
