more and more companies are joining the hedging camp, and these core issues cannot be ignored
2024-09-18
한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina
"copper prices have fluctuated sharply this year. as a result of accurate prediction of the market conditions, we began to increase the hedging ratio in january, with the highest hedging ratio reaching 87%. when the shanghai copper futures price peaked, we promptly lowered the hedging ratio. from the current perspective, the goal of stabilizing prices has been achieved," said pan zhibin, head of the hedging platform of chint electric co., ltd. (hereinafter referred to as "chint electric").
as commodity prices fluctuate sharply, hedging to mitigate price volatility risks has become the demand of most companies. recently, more and more listed companies have issued hedging announcements.
recently, china railway materials announced that in order to prevent and reduce the operating risks brought by the price fluctuations of refined oil products, its wholly-owned subsidiary china railway oil materials plans to hedge its refined oil-related businesses. tianci materials also said that in order to avoid and reduce the price fluctuation risks of raw materials related to the company's production and operation, the company and its subsidiaries plan to carry out commodity futures hedging business according to the production and operation plan.
according to incomplete statistics, in the past month, more than 20 listed companies including yindu holdings, sanyou chemical, hailian jinhui, haoli technology, golden galaxy, and quanfeng automobile have issued announcements on carrying out futures hedging business.
so, what is the key to corporate hedging? pan zhibin told the first financial reporter that companies need to identify the main risk points in their operations, find market tools to hedge the risks, and conduct trend analysis on relevant market conditions. they should combine actual business needs with precise operations, make timely adjustments dynamically, and pay attention to risk control. this also involves close coordination and supervision and checks and balances between departments. this requires companies to have a professional and stable team and establish a hedging system process and risk control system based on their actual business conditions.
enterprises need to pay attention to these core issues when carrying out hedging
while announcing the launch of futures hedging business, most listed companies also released feasibility analysis reports.
according to the feasibility analysis report disclosed by china railway materials, as domestic crude oil futures prices are highly correlated with refined oil prices and the conditions for cross-product hedging are in place, china railway oil materials plans to use its own funds to trade crude oil futures at the shanghai international energy exchange. the total amount of funds actually occupied by hedging transaction margin at any point in time shall not exceed 50 million yuan and can be recycled within the hedging period.
the products that tianci materials plans to trade are lithium carbonate, palm oil and copper futures related to the company's production and operation. the trading tools include but are not limited to options, futures, forwards and other derivative contracts.
according to the announcement, the margin amount and premium limit for the hedging business of the company and its subsidiaries shall not exceed 150 million yuan or the equivalent amount in other foreign currencies. the maximum contract value held on any trading day shall not exceed 1.5 billion yuan or the equivalent amount in other foreign currencies.
the overall goal of hedging for enterprises is to stabilize production and operation, reduce financial costs, and innovate the purchase and sales model. so, how to carry out hedging specifically and what core issues need to be paid attention to?
chint electric has been engaged in hedging since 2010, and the relevant systems and systems have been improved and tested for more than 10 years. combining practical experience, pan zhibin believes that enterprises should focus on the following issues when conducting hedging: how to ensure the locking of project target costs when bulk material prices fluctuate violently; how to optimize hedging strategies under different market conditions; how to coordinate and link business among the company's departments efficiently; how to avoid price fluctuation risks with hedging before the project bidding results are disclosed; how to classify futures gains and losses (profits and losses from closing positions, profit and losses from transferring positions, and profit and losses from holding positions) into specific projects, etc.
in response to the above situation, pan zhibin believes that enterprises can implement hedging in four steps: the first step is to classify the enterprise's procurement and sales models; the second step is to formulate corresponding hedging strategies for different types of procurement and sales models; the third step is to summarize the procurement and sales plans, and calculate the risk exposure based on raw material inventory, work-in-progress inventory, finished product inventory, and waste materials, and establish corresponding hedging positions; the fourth step is to calculate the new risk exposure in real time (daily) according to the actual situation, and perform corresponding hedging operations.
the hedging demands of enterprises vary depending on the industry or link in the industrial chain. among them, enterprises that directly purchase bulk raw materials can buy futures contracts in the futures market in advance to prevent losses caused by price increases when purchasing goods in the future. this type of scale accounts for a large proportion and has a large risk exposure, and most positions need hedging.
some are purchased indirectly through semi-finished products, and the supplier adopts the average price pricing model, which indirectly transmits the price fluctuations of bulk raw materials to the downstream. "this requires optimizing the hedging structure of purchased processed products according to market changes, leaving some exposure, and adopting floating hedging. the risk position must be coordinated with the hedging scale, controlling risks and setting a stop-loss mechanism." pan zhibin said.
some companies hedge their spot inventory, which is usually done by selling hedging. another type of hedging is strategic hedging, which is to establish virtual inventory based on the company's annual estimated costs and combined with research and analysis of trends to reduce storage costs and capital costs. pan zhibin believes that this type of hedging is generally done by floating hedging, and the scale is determined based on market conditions.
the company's risk preference is reflected in the choice of specific hedging ratio. pan zhibin analyzed that when the company's profits are high, it can moderately reduce the hedging ratio or not hedge and bear the risk of price fluctuations; when the company's profits are low, its tolerance for price fluctuations is low, and the overall hedging ratio can be relatively high to hedge the impact of price changes on costs.
what risks should we pay attention to?
hedging is a complex system engineering. it is a risk hedging tool for real enterprises, but it is also prone to risks if not used properly. how to predict and avoid risks is also one of the compulsory courses for enterprises.
in the industry's view, companies engaging in hedging business face risks such as policy changes, large price fluctuations, insufficient liquidity of the transaction subject, improper operations or operation failures, and imperfect internal control systems.
in this regard, pan zhibin said that in response to the risks brought by price fluctuations, chint electric generally conducts risk analysis and stress testing on positions, etc., especially when the market fluctuates violently. the company will hold an ad hoc decision-making meeting to formulate specific operational plans, such as reducing positions, closing positions, etc.; for operational risks, it is necessary to give full play to the supervision mechanism in daily operations, and to mutually restrict and supervise each other in terms of systems, departments, personnel, and accounts.
"in the process of hedging and stabilizing prices, it is also very important not to speculate. even if extreme market conditions occur, the impact will not be particularly large if you strictly follow the hedging system and strategy," said pan zhibin.
listed companies that announced the launch of hedging business have also formulated risk control measures. tianci materials said that the company has formulated the "futures hedging business management system", which clearly stipulates the approval authority, business process, risk management system, reporting system, confidentiality system, etc. for the company's hedging business. the scale of the company's hedging business will match its own business operations.
sanyou chemical also stated that the company's hedging business transactions are limited to commodities within the production and operation scope of the company and its holding subsidiaries and raw materials related to the company's production and operation, and are not for the purpose of speculation or arbitrage; it strictly follows the hedging plan, operates in compliance, applies for hedging positions in a timely manner, manages positions well, and controls position risks and liquidity risks.
"the company and its subsidiary china railway oil have established a standardized organizational structure and internal control system, clarified the management system and management responsibilities at all levels, and the company headquarters vertically manages the hedging business of subsidiaries; subsidiaries engaged in hedging business are equipped with front, middle and back-end professionals such as decision-making, operations, funds, risk control and accounting, the key positions are separated, and a regular reporting mechanism combining futures and spot is established." china railway materials said.
overall, pan zhibin believes that hedging is a dynamic system project that requires companies to pay attention to four aspects: first, it requires a professional and stable team, a good office environment, and coordination and cooperation with various departments; second, a complete information system is crucial for hedging information collation, operation, and performance tracking; third, since bulk raw material trading is a 24-hour global market, timely and dynamic risk control tracking is required; fourth, the huge price fluctuations of bulk raw materials also require the establishment of a corresponding emergency decision-making mechanism.
"companies should also continuously update and optimize the hedging business management system and hedging implementation rules, summarize new situations and new problems arising in actual business, so as to make the system or implementation rules more complete and systematic." pan zhibin said.
(this article comes from china business network)
