I. Background and Necessity of Financial Derivative Business
(1) Currency Financial Derivative Business
The company has significant import procurement in USD, with increased volatility in the RMB exchange rate. In the first half of 2025, the RMB faced pressure, reaching a low of 7.3615. In the second half, the Federal Reserve began cutting interest rates, leading to a rebound in the RMB, which rose from around 7.24 to approximately 7.10. As of December 31, 2025, the onshore RMB to USD spot exchange rate was reported at 6.9926, appreciating about 4.13% since the beginning of the year. Looking ahead to 2026, global economic uncertainties persist, but the RMB is likely to maintain a strong oscillating pattern due to narrowing interest rate differentials between China and the U.S., domestic demand recovery, and market desensitization effects. Given the company's substantial import volume, exchange rate fluctuations increasingly impact overall performance. To enhance the company's ability to manage foreign exchange risk and improve financial stability, it is necessary to utilize proprietary funds to select simple currency derivatives to mitigate negative impacts on operational performance and achieve hedging objectives.
(2) Commodity Financial Derivative Business
In 2026, the steel market will face contradictions from external and internal demand, investment consumption, supply-demand dynamics, and regional development. Macroeconomically, the domestic real estate sector has downward space, with second-hand housing prices declining rapidly and new construction area down 12% year-on-year. Infrastructure investment growth is slowing, and government bond issuance has significantly weakened. Domestic steel exports are expected to decrease by 19 million tons in 2026, with export profits suppressed by declining demand. On the cost side, iron ore prices are expected to remain strong, with coking coal prices potentially rebounding by over 10%, and environmental costs for steel mills may increase. Overall, steel prices are expected to slightly rebound, posing significant challenges for the company's sales and inventory management. In 2026, production from major mines like Rio Tinto and Vale is expected to increase slightly, with attention on the actual capacity release from the Simandou mine. Given the high demand for iron ore driven by profit motives, iron ore prices are expected to remain firm. To better manage market volatility and stabilize operations, the company plans to use futures hedging to lock in profits or mitigate inventory depreciation r