Ferroalloy is the “salt” in iron and steel smelting. In the metallurgical industry, there is a saying that “no manganese is not steel”. In recent years, driven by the substantial growth of China’s crude steel production, ferroalloy as a necessary basic charge for steelmaking, consumption has also maintained a rapid growth rate.
The listing of ferroalloy futures has played a positive role in improving the concentration of the ferroalloy industry, enhancing the development level of the industry, optimizing the layout of the ferroalloy industry and enhancing the right to speak of the industry. Enterprises make full use of futures trading delivery, can effectively smooth the abnormal fluctuations of market prices.
Dahe Financial Cube reporter learned through the visit that with the gradual increase in the activity of the futures market, more and more ferroalloy industry enterprises have been able to skillfully apply futures tools for risk management, hedging, and base price, to help enterprises reduce business risks, optimize inventory management, and escort the steady and sustainable development of enterprises.
Hedging helps enterprises avoid risks
Maximize benefits
In the past ferroalloy trade, the spot trade price of ferroalloy is mainly determined by the bidding and procurement of steel mills, and in this process, the discourse power of ferroalloy enterprises is low.
In this context, manganese silicon and iron silicon futures were listed and traded in Zhengshang Exchange on August 8, 2014. Since then, more and more enterprises have participated in the futures market, using the futures market to avoid business risks, optimize inventory management, and refine business models.
“Since the futures listing, we respect the market, the market has opened up sales channels for us, established a reservoir for product inventory, alleviated the financial pressure of enterprises, effectively solved the vicious competition in the industry, accelerated the introduction of talent, from a ‘sunset industry’ into a ‘sunrise product.'” Wang Hao, marketing director of Inner Mongolia Puyuan Ferroalloy Co., LTD. (hereinafter referred to as Puyuan Ferroalloy), said that after the listing of manganese silicon futures, it provides a fair and authoritative third-party price, which not only reflects the demand factor, but also reflects the supply factor, creating a benign competitive market environment and pricing basis for ferroalloy enterprises, so as to improve the fairness of the market.
The reporter learned that Puyuan Ferroalloy, as a production and processing enterprise integrating production, sales, comprehensive utilization of waste residue and waste gas, faces many uncertain factors in production and operation, such as the market price fluctuation risk of raw materials and finished products, inventory impairment risk and policy change risk. In 2015, Puyuan Ferroalloy began to try hedging and risk hedging through futures tools to avoid business risks, optimize inventory structure, and provide guarantee for the steady development of the company.
Minmetals Lake Iron (Inner Mongolia) Ferroalloy Co., LTD. (hereinafter referred to as Minmetals Lake Iron), located in the Inner Mongolia Autonomous Region, is also a beneficiary of ferroalloy futures. “The company began to try manganese silicon hedging business in 2016, gradually summing up experience in learning and practice, and improving and optimizing the business model. Manganese-silicon hedging plays an important role in supporting the company’s sales operation and risk hedging.” Zhou Zhiqing, a member of the Party Committee and deputy general manager of Minmetals Lake Iron, said that after the listing of ferroalloy futures, production enterprises have experienced a process from unfamiliar to gradually recognized to familiar with ferroalloy futures, and now more and more ferroalloy production enterprises are willing to take the initiative to participate in futures trading, and flexible hedging strategies provide effective means of risk hedging for production enterprises. Help enterprises to achieve more stable operations.
Gan Zhanhua, general manager of Qinghai Fuxin Silicon Industry Co., LTD. (hereinafter referred to as Qinghai Fuxin), said that the traditional trade model is restricted for small and medium-sized production enterprises, and after the listing of ferroalloy futures, the company’s sales model has changed greatly. Since the second half of 2016, most of the company’s products have been traded through the futures board, and it has formed a business model of walking on two legs of spot and futures, and has realized the maximum benefit through futures tools.
“In recent years, the proportion of ferrosilicon sold by Qinghai Fuxin using futures tools accounted for more than 90%, through the calculation of enterprises of the same size, our stable profits through futures are at least 50% higher than other enterprises.” Gan Zhanhua said that since the beginning of 2021, the company has passed futures point prices and hedges of more than 20,000 tons, accounting for 60%, and achieved good economic benefits.
Ferroalloy futures delivery is conducive to promoting industry standardization
Help enterprises to better inventory management
The ferroalloy industry is mostly distributed in the southwest and northwest regions where energy and water resources are relatively rich, and the downstream of ferroalloy is mainly the iron and steel industry, and the consumption is concentrated in North and East China. According to the above characteristics, Zhengshang ferroalloy futures adopt the traditional “warehouse + factory warehouse” delivery method to achieve the connection between the futures market and the spot market.
“Reasonable warehouse and factory warehouse layout is an important factor affecting spot enterprises to participate in the futures market.” At present, the ferroalloy plant warehouse is mainly located in the southwest and northwest regions, and the ferroalloy enterprises in the region can take advantage of the advantages of the plant warehouse to participate in the ferroalloy futures trading and delivery.” The relevant person in charge of Zhengshangsuo introduced that the ferroalloy products after delivery and delivery in the futures market can be digested by downstream enterprises in a timely manner, and the layout arrangement of ferroalloy warehouses and factory warehouses has realized the transformation of location advantages and resource advantages to institutional advantages, which is conducive to the reasonable adjustment of industrial layout.
“Puyuan ferroalloy is one of the first batch of manganese silicon futures delivery warehouses of Zhengshang Exchange, and it is also the first warehouse receipt of acceptance guarantee for registration and upgrading, which is the crystallization between industrial demand and delivery rules.” Wang Hao said that Puyuan ferroalloy only needs to adjust the production and operation plan in the delivery month or even the delivery month, and the registered factory warehouse receipt can be delivered with higher flexibility. With the advantages of the delivery plant library, Puyuan ferroalloy has a deeper participation in the futures market and can better realize the combination of time and present.
On August 1, 2014, Qinghai Fuxin became one of the first delivery warehouses designated by Zhengshang iron silicon Futures. Gan Zhanhua said that after the company becomes a delivery warehouse, it can grasp the spot market information in a more timely manner, expand the business of enterprises, and enterprises can grasp the rhythm of production and processing costs according to the futures market price. At the same time, it also provides convenience for the resources of ferroalloy enterprises in Northwest China to enter the futures market, shorten the registration time of warehouse receipts, help solve the problem of insufficient warehouse receipts in stages, and prevent and resolve potential market risks.
Zhou Zhiqing said that for ferroalloy production enterprises, the delivery warehouse is more flexible than the traditional delivery warehouse, and enterprises can independently arrange the pace of production, but also help enterprises to avoid the risk of abnormal market fluctuations. In addition, the delivery of ferroalloy futures is conducive to promoting more transparency and standardization of the underlying commodities, and helps enterprises to better manage inventories.
Put the role of futures markets in perspective
Avoid turning from a hedger into a speculator
Futures market provides enterprises with places and tools for risk management. Although enterprises may obtain risk returns through speculative operation, if they do so, they will deviate from the original intention of participating in futures market hedging, so that enterprises will change from a hedger to a speculator, and the purpose of transferring the risk of price fluctuations will change to earning profits. As a result, enterprises are bound to be exposed to greater risks.
“There are now more diversified ways to participate in the futures market, which has played a great role in the sales channels, analysis and judgment, post-purchase and inventory management of enterprises.” Wang Hao said that for enterprises, futures should be correctly understood and used, the core of enterprise development is to increase corporate profits, reduce risks, optimize inventory management, so as to choose their own futures tools, can not forget the original intention, put the cart before the horse.
Zhou Zhiqing said that in the reasonable use of hedging for risk management should also be noted, although rigorous hedging theory will not appear a big risk, but must pay attention to the risk prevention of the current business itself.
First, establish a sound futures management system, be familiar with futures trading rules, comply with hedging trading rules, avoid speculative trading behavior, and ensure that the physical delivery capacity is greater than the open position. Second, it is recommended to strictly control the matching ability of positions and funds to prevent extreme situations. Third, if the delivery is carried out, it is recommended to understand the storage capacity, transportation conditions, delivery cycle, capital occupation and other information of the warehouse to be delivered in advance. Fourth, it is suggested to cooperate with professional futures companies and spot trading companies to carry out current business, and the partners will provide professional operational strategies and risk prevention and control methods, especially for more professional financial derivatives products such as rights business, options and foreign exchange swaps. Fifth, it is possible to moderately try cross-variety cross-hedging with a high correlation coefficient with the cost of the main product, such as ore, for mutual protection.
