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Ferroalloy futures put on "protective armor" for enterprises.
Sep 9,2020 15:56CST
Source:Futures daily
The content below was translated by Tencent automatically for reference.

SMM Network News: at present, more and more enterprises participate in the ferroalloy futures market, some production enterprises and risk management companies jointly carry out cooperative hedging and other business, related enterprises began to use a large number of base price trade model, ferroalloy futures for industrial enterprises to effectively avoid risks to provide a body protection "armor".

Since the listing of ferroalloy futures, entity enterprises in the upper and lower reaches of the black industry chain have increasingly participated in the ferroalloy futures market, using futures tools for hedging to help enterprises manage inventory and effectively avoid market risks. the industry pricing model has been continuously improved, and the basis quotation model has gradually become the mainstream of the industry.

It is understood that most ferroalloy enterprises are private enterprises, and when they participate in the futures market, they often have problems such as insufficient funds and lack of futures professionals, while the risk management companies of futures companies have advantages in terms of funds and professionals. but lack of production, sales and other spot processing capacity. Therefore, in the ferroalloy industry, many production enterprises and risk management companies have formed a strategic cooperative relationship, jointly carry out cooperative hedging and other business, give full play to their respective advantages.

Qinghai Fuxin Silicon Industry Co., Ltd. (hereinafter referred to as Fuxin Silicon Industry) is the main business of ferrosilicon production and sales, with an annual production capacity of more than 50,000 tons, is the forerunner of the cooperative hedging model. Fuxin Silicon Industry cooperates with the risk management company of the futures company to form a cooperative hedging model that "the enterprise is responsible for production, the risk management company is responsible for providing technical and financial support, and the two sides make joint decisions."

According to Gan Zhankui, deputy general manager of Fuxin silicon industry, the company will hedge more than 90% of the annual production capacity of ferrosilicon with risk management companies to lock in expected returns in advance to meet some of the company's risk management needs. "in addition, as the ferrosilicon industry is a high energy-consuming industry, and most of them are private enterprises, it is difficult to obtain sufficient loans through bank channels, but with the support of risk management companies, the financial pressure has been greatly alleviated. Avoid the embarrassing situation that the factory still needs to raise money everywhere in the past."

In addition, in recent years, the pricing model of ferroalloy industry has also changed significantly. Due to the high degree of standardization and concentration of ferroalloy market, the basis quotation model has quickly become the mainstream of the industry, ferroalloy industry enterprises, especially trade enterprises began to use the base price trade model. According to incomplete statistics, about 400000 tons of ferrosilicon trade in 2019 is based on the basis price model, accounting for about 8 per cent of China's apparent ferrosilicon consumption and 20 per cent of intermediate trade volume.

Chen Jianwei, assistant to the general manager of Yuxin Investment Management (Shanghai) Co., Ltd., believes that enterprises use futures prices as a benchmark, adjust the discount according to the consideration of the origin and quality of commodities, and make effective use of the market pricing mechanism. so that buyers and sellers have equal status. For the seller, fixing the basis through the sales basis contract can effectively avoid the influence of the basis fluctuation of conventional hedging and help the enterprise to manage the risk of sales price fluctuation; for the buyer, the basis price makes the pricing mechanism more reasonable and fair, and can stabilize the procurement supply at the same time.

Chen Jianwei told Futures Daily that at present, the vast majority of ferrosilicon traders and some private steel mills have accepted the futures pricing model. It has become the common cognition of customers in ferrosilicon industry to improve their own risk management level through advanced risk management tools. Only by being in awe of the market, in awe of risks, and making full use of futures to manage the risks in production and operation, can industrial enterprises achieve "everlasting business" and create a real "century-old store".

Xie Dezhong, deputy general manager of the Hangzhou Branch of Minmetals Industry Financial Services (Shenzhen) Co., Ltd., believes that in recent years, thanks to Zheng Shangsuo and the futures company's unremitting efforts to carry out market cultivation activities such as futures knowledge popularization, rule promotion, product promotion, etc., the ferroalloy industry is getting higher and higher in recognition of futures, and the upstream and downstream enterprise customers of the ferroalloy industry participating in the futures market are also gradually increasing. Ferroalloy futures provide "armor" for industrial enterprises to avoid risks effectively.

He said: "ferroalloy industry chain enterprises should understand, accept and learn to use futures tools as soon as possible. at the same time, they should attach great importance to risk control and strictly abide by the operational discipline and rules of the futures market. only in this way can we better protect the production and operation of enterprises."

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