Inventory Survey Of Commodity Enterprises Under The Epidemic: Futures Hedging To Avoid Price Declines And Inventory Impairment Risks

Although the process of resuming work and resuming production has been quickened. Many industrial chain upstream commodity production and trade enterprises are still facing a lot of pressure to inventory.

Liang Zhonghua, a macroeconomic analyst at Zhongtai securities, released the latest report, pointing out that the inventory level of major industrial products such as steel, cement and chemical industry rose to a record high level due to the decline in economic activity and the cold demand for commodities. The storage level of the 5 main steel mills is about half higher than that of the past, and the storage capacity of cement has also exceeded the level of the past few years. High point, chemical PTA stock days reached two times the past high.

According to data from Tang and Song Dynasties, as of February 22nd, the total stock of steel market reached a record 34 million 280 thousand tons, and factory inventory exceeded the limit. In addition, 2 million tons of steel were produced continuously every day.

A leader of steel production enterprises in Jiangsu and Zhejiang also told reporters that what they are most worried about is that the high inventory and low demand for downstream products are weakening, which is making the price of steel keep falling, resulting in their stock depreciation and operating pressure increasing.

Reporters noted that not only steel, many commodities are also facing huge pressure on price falls.

In the face of difficulties, more and more upstream commodity production and trading enterprises began to find a way out.

Reporters have learned that the number of upstream businesses hedging commodity prices and selling weak risks is increasing rapidly.

A senior company involved in the production of disinfectant raw materials told reporters that in order to fight against the epidemic, their enterprises are increasing the production of disinfectant raw materials, resulting in a large backlog of raw material PVC in main business. Previously, enterprises did not know that hedging risks of PVC stock prices could be hedged by futures hedging. For example, under the Futures Company recommendation, they quickly bought the corresponding number of bearish PVC futures positions to hedge the risk of falling prices.

"However, futures hedging can only alleviate some of the pressure on sales and prices of stocks in enterprises. In order to really get rid of the pressure of upstream enterprises, we need more downstream enterprises to resume production and restore the demand for commodities to a normal level. The above leaders of steel production enterprises in Jiangsu and Zhejiang revealed to reporters. At present, the local government has relaxed the approval process for resuming work and resuming production, and has intensified efforts to help workers return to the city to help enterprises speed up the resumption of work and resume production.

"This also means that spring is coming, and the pressure on inventory is decreasing day by day." He pointed out.

Futures hedging reduces inventory pressure

Because of the decline in economic activity and the weakening of demand, more and more commodity traders are worried about "going stock" and "falling price risk".

An iron ore trader told reporters that because of the sudden cancellation of orders from buyers, the iron ore imported from Australia can only be stored on transport vessels and drifting in the Pacific Ocean.

"Now we have to pay a lot of shipping charges and extra warehousing costs every day, and the buyers have already paid most of the penalty. The iron ore trader told reporters.

Compared with commodity traders, many raw materials manufacturers are also having a bad time.

The above leaders of steel production enterprises in Jiangsu and Zhejiang told reporters that many downstream steel companies had postponed the purchase of goods for various reasons because of the closure of their businesses. As more and more steel stocks are stacked in warehouses, the management of the whole enterprise is worried every day that the fall in steel prices has greatly reduced corporate profits, or even lost money.

"Now we are also in a dilemma. If we shut down the boiler and reduce production, we will have to spend a lot of money to restart the boiler. On the contrary, we must maintain the existing production intensity, and a large number of steel stocks will continue to face the risk of falling prices and expanding losses." He pointed out. Fortunately, under the proposal of two Futures Company, they tried to produce 40% steel stocks for futures hedging, so as to resist the risk of falling prices and weak sales.

Specifically, the steel producer decided to buy a certain number of bearish steel futures positions on the basis of base price fixing, that is, the difference between the spot and futures prices of steel at a specific time and place, thereby hedging the potential downward pressure on steel products. At the same time, they bought a certain quantity of iron ore to buy up futures at a lower price, thus locking down the cost of raw material procurement. Profits from steel production.

"This effect is not bad. At present, the enterprise management team no longer pays attention to the fluctuation of steel price once every hour, and will focus on the link of production and efficiency." He told reporters.

The foregoing iron ore traders also revealed to reporters that they are buying iron ore bearish futures at the base price, and the iron ore inventory of their competitors is hedging.

"In fact, another advantage of futures hedging is that it is convenient for us to apply for warehouse receipt pledge loans to revitalize capital flows." He told reporters. In the past, when the demand for iron ore dropped, they all expanded the sale of "going to stock" by signing the benchmark price plus floating price with the downstream enterprises, but the pricing method based on the spot market price collection may not accurately reflect the latest changes in supply and demand in the market. On the one hand, traders often sell low prices and suffer losses. On the other hand, banks also feel that this pricing method can not be achieved. We should avoid the risk of price fluctuation and be reluctant to lend loans to warehouse receipts. But now, through futures hedging, banks believe that the price volatility risk of this iron ore inventory is effectively hedged, and the corresponding approval rate of loan approval has increased significantly.

He bluntly said that through this warehouse receipt mortgage loan, the liquidity of his company has been greatly improved. In the short term, no need to worry about the capital chain break, he was forced to sell the iron ore inventory at a low price.

Zhang Jun, an analyst at Zhongda futures company, pointed out that in view of the fact that many industries have slow down, slow return, high inventory and a substantial drop in spot prices, it is a good way for the upstream raw material production and trading enterprises to sell hedging through futures market. When a futures contract is sold, it is closed again when the spot sale is completed. In addition, the bets of futures prices can also effectively hedge the risk of spot price reduction.

Hedging to solve raw material purchasing problems

It is worth noting that along with the acceleration of the process of resuming and resuming production, some downstream enterprises are also in urgent need of futures hedging to hedge raw material price fluctuations and purchase risks.

A central construction company procurement department chief told reporters that at present, their upstream hot rolled steel suppliers have not yet resumed work, resulting in their recovery process encountered raw material shortages. In addition, the company's top executives also worry that as more and more construction companies resume work and resume production, they will not rule out that some hot rolled steel suppliers take the opportunity to raise profits and increase their purchasing costs.

"With the help of the relevant departments of the local government, we have cooperated with a local Futures Company, which has developed a complete set of raw material procurement plan for us." He revealed. Specifically, the enterprise first buys a certain number of hot coil steel futures positions at a lower price in the futures market. If the futures contract expires, the hot rolled steel spot is lower than the futures price, the enterprise will sell the futures position and buy the spot directly, otherwise the enterprise will fulfill the futures contract and buy hot rolled steel through physical delivery.

However, what worries him now is that the local hot rolled steel futures delivery warehouse has about 1 days' transportation distance from their enterprise production base. If there are more checkpoints and congestion on the road, the enterprises will not be able to get hot rolled steel raw materials on time, resulting in low production efficiency and extra operating costs.

"Recently, we have joined a number of local large and medium-sized downstream enterprises, and reported the difficulties in transportation logistics to local government departments. The latter said they would organize logistics companies to allocate corresponding vehicles to assist in the purchase and transportation of raw materials. At the same time, local authorities concerned would be required to take more flexible and efficient release measures to the relevant vehicles in compliance with the requirements of epidemic prevention supervision." The director of the procurement department of the construction company pointed out.

With the increasing variety of futures trading, more and more downstream companies are actively introducing options to improve their hedging options.

Shi Tianzhao, a trader in Optics Valley agricultural products trading market in Wuhan, said that in order to deal with the impact of uncertainties such as the epidemic, his company held an option to hedge about 2000 tons of cotton spot risk before the Spring Festival, including buying 120 hand (about 600 tons) cotton put option before the Festival. Recently, enterprises took into account the return of enterprises to the resumption of production and the coming of the peak season of consumption, so that cotton futures prices may hit bottom. Rebounded and sold 300 hands (about 1500 tons) of cotton bulls to boost spot returns.

"Considering that the option contract is about to expire, the company recently chose to exercise the 108 hand cotton put option before the festival, while closing the remaining put options and the selling call options, thereby avoiding the risk of the cotton price drop caused by the epidemic." He admitted. Compared to futures hedging, buying cotton put option, during the rebound in cotton prices without additional margin pressure, and can play a hedge effect, so that the cost of capital hedging business is lower and smaller losses.

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