SMM News: ferroalloy is a necessary auxiliary material for steelmaking, if the steelmaking process is compared to "cooking", ferroalloy is like "salt", although the amount is small but indispensable. On August 8, 2014, ferrosilicon and manganese silicon futures (collectively referred to as ferroalloy futures) were listed and traded in Zheng Shang Stock Exchange. As the first batch of metallurgical futures in Zheng Shang Institute, after six years of cultivation and development, the ferroalloy futures market has developed well and the ability of futures price discovery has been enhanced day by day, which has played an important role in promoting and improving the industrial price formation mechanism.
In China, ferroalloy production is the largest and most widely used are ferrosilicon and manganese silicon. In recent years, the price fluctuation of ferroalloy market has increased, and listed ferroalloy futures have important strategic significance.
According to the Futures Daily reporter, since the listing of ferroalloy futures, the scale of its position has steadily expanded, and the degree of legal person participation has gradually increased. Data show that in the first eight months of this year, the average daily trading volume of ferrosilicon futures and manganese-silicon futures was 112000 lots and 181000 lots respectively (unilateral, the same below), and the average daily positions were 181000 lots and 125000 lots, respectively, a significant increase over the previous two years, and the scale growth trend is obvious. At the same time, the position structure has been further optimized, and the proportion of legal person positions has increased steadily. In the past three years, the legal person positions in ferrosilicon futures accounted for 22%, 31% and 54% respectively, while those in manganese silicon futures accounted for 34%, 39% and 52%, respectively.
According to statistics, at present, about 60% of ferroalloy production enterprises and 90% of trading enterprises have been able to make flexible and diverse use of ferroalloy futures to protect the operation of enterprises, and the degree of industry participation is at a high level. People in the industry believe that after years of market cultivation, more and more enterprises recognize ferroalloy futures and realize the benefits of using futures tools to serve spot operations.
Since ferroalloy futures appeared on the market, the function of price discovery has been gradually highlighted. By providing open and transparent prices, it can timely and effectively reflect the situation and changes of the spot market, and the market information is more symmetrical, which provides an effective basis for the decision-making of the main body of the industry. The data show that the spot price correlation of ferrosilicon and manganese silicon is 0.91 and 0.96 respectively, which is at a good level in various futures varieties.
Liu Pengfei, vice chairman of Tengda Northwest Ferroalloy Co., Ltd. (Tengda West Rail for short), said: "Tengda West Rail has taken ferroalloy futures prices as an important reference for day-to-day business decisions. Ferrosilicon futures price fell below the production cost at that time in 2019, leaving the factory is a loss. After receiving the futures price signal, we made a decisive decision to reduce ferrosilicon production capacity and buy ferrosilicon for delivery from the futures market, effectively avoiding operating losses. "
Tengda West Railway is located at the junction of Gansu Province and Qinghai Province, with an annual production capacity of about 300000 tons. It is one of the national key ferroalloy enterprises and one of the first enterprises to participate in ferroalloy futures.
Liu Pengfei said that ferroalloy futures prices reflect market expectations such as supply and demand, and the company has been paying attention to and adjusting production according to this signal, effectively reducing the risk of corporate losses. If there is no futures market, when the price is lower than the cost, the enterprises often continue to produce because of the cooperative relationship maintenance of the industrial chain, which leads to the aggravation of the oversupply, the accumulation of market risks, and some enterprises are even forced to shut down when the capital chain is broken.
People in the industry generally believe that ferroalloy futures provide an excellent tool to guide the production and operation of enterprises in the ferroalloy spot market. When there is an imbalance between supply and demand in the spot market, industrial enterprises can use futures tools to achieve the rebalance of operation, provide buffer time for the adjustment of supply and demand, and provide a lubricant for the healthy development of the industry.
In addition, ferroalloy enterprises generally have the situation of "small, scattered and weak", the degree of scale and centralization is seriously insufficient, the product circulation process is relatively simple, and most of the production enterprises do not have the initiative in product sales. especially compared with the downstream steel enterprises "big guy", the pricing discourse right is basically missing.
"the general feeling of ferroalloy enterprises is that price changes are difficult to control, and managers feel like walking on thin ice all the time. On the other hand, ferroalloy futures have played a role in improving the bargaining power of enterprises and reducing the operating risks of enterprises. " Said Zhou Xiaoning, manager of carbon steel alloy department of China Mineral Co., Ltd.
It is understood that in the past, the downstream steel mills were in a strong position, and the pricing power was basically decided by the steel mills. However, as ferroalloy enterprises gradually participate in futures hedging, lock in profits in advance, and gradually have a say in bargaining with downstream steel mills, the futures market promotes a more fair and effective spot pricing system and improves the living environment of the ferroalloy industry.
"ferroalloy enterprises should make full use of the two major functions of price discovery and hedging in the futures market, and the combination of spot and futures, it will play a positive role and effect in improving the bargaining power of enterprises, reducing the operating risks of enterprises, locking in production and operating profits and expanding financing channels." Zhou Xiaoning said.
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