Does U.S. Steel prefer to own coal mines? Give reason for your answer
U.S. Steel is integrated into iron mining, it currently does not own any of the mines that supply its coking coal. Unlike iron ore, the company's coking requirements are a tiny percentage of the coal industry's output, and coal is easily transportable by rail. No coal producer can profit by acting opportunistically toward U.S. Steel because so many other mines produce coal that it can use. The company has delivery contracts with several mines, but if necessary it can enter the spot market to obtain or dispose of coal. Futures and options markets are available for coal, and the company can manage its risks with them as it cannot in the much thinner market for iron ore. Coal is a less specific resource than iron ore; it trades at competitive prices, and U.S. Steel can hedge any remaining risks without having to own mines.
You might also like to view...
Derivatives are securities that derive their values from the values of underlying investments
a. True b. False Indicate whether the statement is true or false
A monopolist's cost curves may shift down because
a. large-scale input purchases may permit the monopolist to take quantity discounts. b. of advertising expenditure. c. competitors are pushed out of the market. d. of bureaucratic inefficiencies.