While consolidating the achievements of supply-side structural reform, the coal industry has entered the innovative development stage of "demand-side reform" of the coal industry during the 14th five-year Plan. In the first quarter of 2021, the overall performance of the spot market of the coal industry is dazzling, showing not only a good situation of increasing price and profitability, but also showing the effective exertion of the function of market-oriented price mechanism.
In the face of the new situation of building a "double cycle" new development pattern and implementing "demand-side reform", how do coal enterprises make use of spot markets and futures, options and other risk management tools? to achieve effective management of coal sales price risk and promote the long-term sustainable development of coal enterprises under the goal of "carbon peak and carbon neutralization" has become the core issue of market research and exploration.
Development of Coal Futures and options Market
At present, the coal futures contracts listed on the domestic futures exchange are mainly coking coal, coke and thermal coal, and option contracts are mainly thermal coal. Among them, coke futures and coking coal futures were listed in Dashang on April 15, 2011 and March 22, 2013 respectively; thermal coal futures were listed in Zhengshang on September 26, 2013; and thermal coal options were listed on June 30, 2020. Three futures varieties and one option variety of coal have developed into standardized and mature futures trading varieties, which effectively give full play to the functions of futures price discovery and risk aversion. More coal upstream and downstream industry chain customers to avoid price fluctuations and manage price risks to provide tools and trading places. It is understood that the big trading house will also promote the listing of options on coking coal and coke as soon as possible, speed up the listing process of gas-coal futures, expand the industrial product "insurance + futures" pilot and basis trading pilot, and strive to provide more risk management tools for the industry.
At the same time, the formation of the coal market price mechanism is promoting the deepening of coal price risk management. The futures market has become the main place for coal enterprises to avoid risks, and futures and options tools are being fully applied by market participants. A new coal sales model represented by futures and option delivery is also being established, and point price trading will gradually be accepted and popularized by the market. The improvement of futures and options market also makes it possible for coal enterprises to implement comprehensive risk management.
Steady progress in the construction of production, supply, storage and marketing system
By January to March 2021, the raw coal output of large coal enterprises had reached 700 million tons, an increase of 71.128 million tons over the same period last year, an increase of 11.4 percent, accounting for 72.12 percent. Among them, the total raw coal output of the top 10 enterprises was 530 million tons, an increase of 57.48 million tons over the same period last year, accounting for 54.6% of the raw coal output of enterprises above scale.
A diversified coal reserve system should be established during the 14th five-year Plan period, and the National Development and Reform Commission and other relevant departments mentioned that they would arrange special funds to support coal production concentrated areas and important port areas of railway hubs, in accordance with the principles of government policies and market-oriented operation, a number of new corporate social responsibility projects will be built in the way of joint construction and sharing of production and marketing. In terms of reserves, the goal is to establish a coal reserve of 600 million tons. Among them, 400 million tons are the commercial inventory of the main body of the market, and 200 million tons are social responsibility reserves.
In December 2020, Gansu Nenghua Group and China Coal Western Coal sales Co., Ltd. held a signing ceremony of "Deep Cooperation and coordinated Development", striving to reach 5 million-10 million tons of coal in 2021 and 20 million-30 million tons at the end of the 14th five-year Plan period. Relying on the advantages of Gansu coal hub channel, we will actively promote the construction of large and medium-sized coal reserve bases, and form a short-term and long-term storage and distribution capacity of 10 million tons and more than 30 million tons in Hexi, Baiyin and other areas of Gansu Province.
In April 2021, the people's Government of Hubei Province issued the outline of the 14th five-year Plan for the National Economic and Social Development of Hubei Province and the long-term goal of 2035, proposing that the deficiency of energy reserves should be made up during the 14th five-year Plan period. we will improve the ability of energy operation mediation and risk prevention. In terms of coal, it is necessary to build a "two lakes and one river" coal logistics hub, build a large-scale coal storage and distribution base focusing on Jiangling in Jingzhou, establish a coal trading center in central China, and renovate and expand the existing coal storage sites and facilities of enterprises. the coal reserve capacity reached 16 million tons.
The construction of large-scale coal reserve projects and the promotion of coal reserve capacity will become the main mode of ensuring the bottom of coal and playing the role of "ballast stone" during the 14th five-year Plan period. moreover, this kind of coal reserve project will enhance the demand and guarantee capacity of coal, improve the mode of operation of coal enterprises, and enhance the ability of market supply and demand adjustment of coal reserves and the ability to stabilize prices. And then promote the function of coal market-oriented price mechanism. Thus it can be seen that the industrial concentration of the coal industry is steadily increasing, and the construction of coal reserve base and production, supply, storage and marketing system are advancing steadily, which lays a solid foundation for coal enterprises and reserve bases to implement comprehensive risk management.
Continuous optimization of innovation and development environment for coal enterprises
At present, the innovation and development environment of coal enterprises is constantly optimized, especially the horizontal M & An integration among large-scale coal enterprises, the innovation of trusteeship management mode, the establishment of a new way of "fixed production by sales", and the continuous innovation and deepening of coal-power joint venture mode. coal enterprises are transforming from being bigger and stronger to being better and better. It is embodied in the following aspects:
First, mergers and acquisitions of large-scale coal enterprises. M & An integration in the coal industry is gradually deepening, in which the typical case of super-large coal enterprise merger is the merger of Yanzhou Mining Group and Shandong Energy Group; the typical case of coal-power integration is the merger of China Shenhua and Guodian; the typical example of industry internal integration is the integration of Shanxi Jinneng Holdings; the coal capital management platform has become a new force in merger and reorganization, such as the establishment of Shanxi State-owned Capital Operation Co., Ltd.
Second, coal enterprises innovate the mode of trusteeship operation. In 2019, the State Coal Supervision Bureau issued the measures for overall Trusteeship Safety Management of Coal Mines. At the same time, Shanxi Coking Coal and Shan Coal Group signed a strategic cooperation framework agreement, which will carry out long-term cooperation in the trusteeship of coal mines and coal preparation plants, marking the birth of the trusteeship business model. In 2020, after the absorption and merger of Mountain Coal Group by Coking Coal Group, trusteeship operation and absorption merger, the new Coking Coal Group has become the fourth largest coal industry group after China Shenhua and Jinneng Holdings and Shandong Energy. The innovation of trusteeship management mode not only improves the voice, pricing power, bargaining power and market competitiveness of relevant coal enterprises, but also enhances the ability of consistent response, which lays a foundation for coal enterprises to implement comprehensive risk management.
Third, coal enterprises establish a new way of "fixed production by sales". In 2019, Shan Coal Group proposed to reform the mode of production, marketing and management system, comprehensively implement "fixed production by sales", steadily promote the whole process and omni-directional quality management, implement "menu" production, and provide "personalized" services.
In 2020, large-scale coal enterprises represented by Mountain Coal International and Shenhua of China will focus on implementing the long-term Association contract in terms of "fixed production by sales". In this way, it is bound to enhance the planning and effectiveness of the production and operation of coal enterprises, enhance the ability to guarantee coal supply, and at the same time help to stabilize market prices and actively carry out the mission of ensuring supply. at the same time, it also opens the market space for coal enterprises to implement comprehensive risk management.
Fourth, the innovation of coal-power joint venture has been continuously deepened. In 2016, the National Development and Reform Commission issued the guidance on the Development of Coal-Power Joint Venture. In 2018, the National Development and Reform Commission and the National Energy Administration issued a Supplementary Circular on further promoting Coal-Power Joint Venture to promote Industrial upgrading to promote the landing and deepening of Coal-Power Joint Venture. In 2021, Shaanxi Coal Group innovated and implemented the "tripartite cooperation" coal-power joint venture model, giving full play to the advantages of resources, management and technology to build a leading intelligent power plant in China.
In a word, the change of the development environment of coal enterprises, especially the innovative development of business models such as merger and integration of large-scale coal enterprises, trusteeship operation, "fixed production by sales" and innovative coal-power joint venture mode, for coal enterprises to implement comprehensive risk management, especially the risk management model with risk trusteeship as the core provides reference experience, coal enterprises have all aspects of conditions for the implementation of comprehensive risk management.
Futures tools improve the risk control ability of coal enterprises
Concept exposition
Around the general goal of the annual sales price of an enterprise, comprehensive risk management is to strictly implement the price risk management process in the course of enterprise operation, and to establish and improve a comprehensive risk management system, including price risk management plans, strategies, measures and organizational function system, price risk management information system, etc., in order to provide a reasonable guarantee for the overall goal of comprehensive risk management. It includes price risk identification, risk evaluation, risk management strategy, risk management solution, supervision and improvement of risk management and so on.
Futures price discovery function is the premise of comprehensive risk management, and futures risk aversion function is the basis of comprehensive risk management. At present, futures and options make it possible for enterprises to implement comprehensive risk management. In this context, coal enterprises to implement comprehensive risk management, adhere to the principles of compliance with the law, scientific norms, and stabilize the market, should adhere to the following operating concepts:
First, stabilize market prices. Under the development concept of domestic and international "double cycle", in order to implement comprehensive risk management, coal enterprises should improve their political position, shoulder the original intention and mission of stabilizing market prices, and take "price stabilization" as their own responsibility. in accordance with the law, scientific and standardized implementation of comprehensive risk management.
Second, lock in the expected sales price. The original intention of implementing comprehensive risk management in coal enterprises should be to make full use of futures and options tools, give full play to the function and role of coal market-oriented price mechanism, and implement price risk management behavior with hedging as the core, in order to lock in the expected sales price and achieve the business goal of expected sales profit.
Third, broaden the sales channels. Through the physical delivery or cash conversion of futures and options, we can broaden the coal sales channels and realize the new mode of coordinated sales in the spot market, especially the hedging of put options can also realize the benefit income on the basis of futures hedging and improve the sales price and ability.
Fourth, innovate the sales model. Through the joint operation of the spot market, futures and options use basis trade models such as point price trading, average price trading and "fixed price" trading on the basis of the traditional spot sales model to improve the overall risk management ability.
Fifth, improve the supply and demand environment. The implementation of comprehensive price risk management in coal enterprises can effectively mediate the supply and demand environment of coal, improve the efficiency of the function of coal market-oriented price mechanism, effectively "stabilize price" and mediate supply and demand, and promote the high-quality development of coal market.
Realization mode
Coal enterprises use futures and options to implement comprehensive risk management, which includes not only the comprehensive risk management of their own coal sales price, but also the comprehensive risk management of purchasing price. it also includes price risk management based on the spot market coal price in the stable period. The specific implementation methods include the following categories:
First, the independent implementation of comprehensive risk management within the enterprise. One way is to set up an independent department within the enterprise, which is carried out with complete business processes, scientific institutional norms, professional personnel team and sound decision-making mechanism. at present, price risk management is mostly carried out in this way in the market. Another way is for enterprises to implement it through the acquisition of futures companies and the establishment of futures company risk management companies. Large coal enterprises in the industry already have such typical representatives, and the effect of price risk management is still good. However, the efficiency of price risk management needs to be improved.
Second, a comprehensive risk management approach implemented jointly by third-party organizations. It is generally carried out by coal enterprises in conjunction with futures industry institutions to make full use of their professional skills in price risk management, mainly in the futures investment consulting model. According to the provisions of the trial measures for Futures Investment Consulting Business of Futures companies, futures companies may carry out risk management consulting, research and analysis, trading consulting and other services. In practice, the investment consulting business of futures companies mainly provides risk management consulting and trading consulting services for relevant enterprises in price risk management. specifically, it includes system and process design, hedging scheme and strategy design, risk management consultation and strategy guidance, etc. futures companies participate in the overall risk management of coal enterprises in the way of investment consulting business, which can promote coal enterprises to scientifically, standardize and effectively implement comprehensive risk management. Improve the ability and level of price risk control. At present, the comprehensive risk management implemented jointly by third-party organizations is one of the main forms of comprehensive risk management in the spot market of the coal industry, but there is a lack of in-depth professional cooperation.
Third, entrust a third party to implement comprehensive risk management independently. Generally, the market operation behavior is carried out independently with the third party through the way agreed in the agreement, for the purpose of price risk management and spot sales, which is also an innovative attempt on the basis of operation, management and trusteeship in the coal industry. it is a comprehensive risk management model based on the independent operation of the agreement.
Management mode
One is the risk trusteeship model. Risk trusteeship is a cooperation agreement based on coal price risk management signed with risk management company or asset management business department of futures company based on annual sales plan and sales price target. In the specific operation, the basis trade and cooperative hedging of the futures company risk management company is a kind of operation mode, and it is also a kind of operation mode to set up an independent asset management plan for price risk management through the futures company.
The second is the basis trade model. According to the provisions of the pilot guidelines for risk Management companies of Futures companies, basis trading refers to the business behavior that risk management companies offer quotations by determining prices or by means of point prices or average prices, and conduct spot transactions with clients. This can be extended to the price risk management agreement based on spot sales signed with the risk management company according to the enterprise's annual sales plan and sales price plan. According to the agreement, the risk management company is fully responsible for the sales price risk management of coal in coal enterprises, so as to enhance the scientific, normative, effective and targeted price risk management of enterprises. Finally, the enterprise coal sales price level and price risk control ability will be improved in an all-round way.
Third, cooperative hedging. According to the provisions of the pilot guidelines for risk Management companies of Futures companies, cooperative hedging means that in order to avoid market risks in the spot production and operation of customers, risk management companies provide hedging services to clients to offset all or part of the price risk of the hedged project. Cooperative hedging business is also a way to achieve comprehensive risk management of coal enterprises, which can effectively improve the ability of coal sales price risk management of coal enterprises.
The fourth is the mode of asset management plan. The asset management plan model based on comprehensive risk management is that coal enterprises entrust the asset management department of futures companies to set up asset management plans, with the management of coal sales prices as the core, and agree on specific operation modes and capital control modes. improve the ability and level of comprehensive risk management. The price risk management mode of entrusting a third party to implement independently is not only the effective mode and the core choice for the coal industry to implement comprehensive risk management in the future, but also the inevitable choice to realize legal, scientific and standardized comprehensive risk management. at the same time, it is also the development direction of the innovative operation mode for the coal industry to achieve high-quality development.
Urgent demand
It has become an inevitable choice for coal enterprises to use futures and options to manage the risk of price fluctuation, especially since 2021, the futures price of thermal coal has reached new highs three times in a row during the conversion of the main contract, and there are also wide fluctuations in the spot market. the urgent need of "price stabilization" is put forward no matter from the point of view of stabilizing the market, industry, supply and people's livelihood, or from the steady development of the coal industry chain. In particular, the National Development and Reform Commission put forward measures to "increase production and stabilize prices" three times this year, which further highlighted the urgency and importance of "stabilizing coal prices." Although large coal enterprises are actively implementing the specific measures of "increasing production, ensuring supply and stabilizing prices", there is also a demand and mission for price risk management in the spot market during the utilization period. On the other hand, the construction of coal reserve base and its function need comprehensive price risk management, and the comprehensive risk management with risk trusteeship as the core is gestating and is about to break the cocoon.
In a word, coal enterprises use futures and options tools to carry out comprehensive risk management, which not only has a good and standardized market foundation, but also has the conditions for operation mode innovation, but also has the basis for the effective exertion of the function of market-oriented price mechanism. On the basis of the current participation of coal enterprises in futures hedging, in the process of continuous innovation and implementation of the NDRC's measures of "increasing production, ensuring supply and stabilizing prices", futures and options will push coal enterprises into a new era of comprehensive risk management.
