first-line survey to see changes | building a futures and spot combined procurement and sales model to solve the problem of cost control in the manufacturing industry
2024-09-25
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stainless steel coil raw materials of chengpu metal. photo by reporter fei tianyuan
reporter fei tianyuan
in recent years, the global economic growth has slowed down, and the contraction of demand has put the manufacturing industry under certain pressure. how to manage the risk of procurement and sales prices more meticulously and further save costs is a problem facing manufacturing companies.
recently, a reporter from shanghai securities news visited and learned that in the stainless steel processing industry chain in the yangtze river delta region, a "three-level market circulation system" has emerged, which is jointly built by the shanghai futures exchange, futures companies and metal traders. this system uses innovative procurement and sales models such as basis trading and rights-based trading to solve the problems of "difficult procurement" and "expensive procurement" faced by manufacturing companies, and helps physical companies save procurement costs.
basis trading reduces procurement costs
jiangsu renzhi stainless steel co., ltd. (hereinafter referred to as "renzhi stainless steel") is a traditional manufacturing enterprise. due to the company's downstream related to the real estate industry, its business volume and profit margin have fluctuated in recent years. "at present, the industry competition is fierce, and the upstream price increase is difficult to pass on to the downstream, resulting in the company's net profit margin of only about 1%." wu xiangdong, chairman of the company, told reporters.
the sharp fluctuations in raw material prices in recent years have made the company's operations even more difficult.
wu xiangdong introduced that the company has a standing inventory of about 20,000 tons of stainless steel. since 2020, affected by various factors, the price of stainless steel first rose from 12,000 yuan per ton to 24,000 yuan, and then fell back to the current 13,000 yuan. "a slight fluctuation in upstream prices will eat up the company's already meager profit margins," he said.
under the introduction of trader jiangsu chengpu metal products co., ltd. (hereinafter referred to as "chengpu metal"), the company was exposed to the innovative model of basis point pricing.
compared with the traditional fixed price, the basis point price only requires the buyer and seller to agree on the current price difference in advance, and gives the purchaser the right to choose the price on the futures market: if the raw material price is judged to rise, the purchaser can "bid the price first and pick up the goods later" to lock in the purchase price in advance; if the price is judged to fall, the purchaser can "pick up the goods first and bid the price later", which can also save procurement costs. the price difference risk is hedged by the seller in the futures market.
since developing base price points with chengpu metal, renzhi stainless steel has saved more than 3 million yuan in procurement costs. while increasing the company's profits, it can also provide more competitive quotations to end customers.
chengpu metal is a large metal trader in the yangtze river delta region. since 2020, chengpu metal has worked with the shanghai futures exchange and dongwu jiuying, a risk management subsidiary of dongwu futures, to build a "three-level market circulation system": relying on the shanghai futures exchange's shanghai futures comprehensive business platform to ensure spot supply and improve turnover efficiency; dongwu jiuying and chengpu metal have carried out innovative models such as rights-based trading and basis trading, using derivative tools to promote "cost reduction and efficiency improvement" in the industrial chain; chengpu metal will promote the innovative model to a wider range of stainless steel terminal companies.
eliminate price information gap in the industry chain
zhejiang yongkang is known as the "world's hardware capital", and the thermos cup industry is a major feature of the local area. "nine out of every 10 thermos cups in the world are produced in yongkang, and the annual output of thermos cups reaches 1 billion," hu zhichuang, general manager of yongkang miancheng metal materials co., ltd. (hereinafter referred to as "miancheng metal"), told reporters.
miancheng metal is mainly engaged in stainless steel processing and trading business in yongkang, with annual stainless steel purchase and sales of about 90,000 tons. the company purchases stainless steel coils from chengpu metal and then cuts them into corresponding shapes according to the needs of thermos cup companies. the company and chengpu metal adopt a basis point price trading model, and part of the saved procurement costs are passed on to downstream thermos cup companies.
in hu zhichuang's view, the role of the futures market is not only to reduce procurement and sales costs, but also to alleviate the problem of information asymmetry between upstream and downstream of the industrial chain. he said: "before the listing of stainless steel futures in 2019, stainless steel prices were not transparent, and upstream manufacturers were very strong. it was difficult for thermos cup companies in yongkang to learn about price changes in the spot market in a timely manner, and they could only passively accept the pricing of stainless steel manufacturers and traders."
during the visit, the reporter learned that the above problems were quite common before, and even evolved into credit risks in some extreme market conditions. an industry chain person told the reporter that when stainless steel prices soared in the short term, due to the high market sentiment, upstream manufacturers and traders might delay delivery, thus disrupting the production rhythm of downstream manufacturers. the related rights protection costs and time costs are unbearable for manufacturing companies.
"after the listing of stainless steel futures, the stainless steel market finally has a fair reference price. now, checking the futures market every day has almost become a compulsory course for managers of industrial chain companies. through the futures market, companies can lock in the purchase price of raw materials, thereby avoiding the risks brought by price fluctuations. futures prices also provide a reference. companies can predict production costs based on current and future futures prices, so as to better plan production plans and product pricing." said hu zhichuang.
helping china's manufacturing industry "go global"
zhejiang jiadele technology co., ltd. (hereinafter referred to as "jiadele technology") is a typical representative of manufacturing enterprises "going global". the company's main products are solar water heaters and air-energy heat pumps, and 95% of its products are exported. as of 2023, jiadele's solar water heater exports have ranked first in china for seven consecutive years. in the past two years, european natural gas prices have skyrocketed due to geopolitical conflicts, and europe's demand for air-energy heat pumps has risen. the company has also seized this development opportunity, and the export of air-energy heat pumps has continued to increase in recent years.
"stainless steel is the main raw material for our company's products, accounting for nearly 50% of the cost of products such as solar water heaters and air-energy heat pumps. the company consumes about 500 tons of stainless steel per month, and its price fluctuations have a great impact on corporate costs." xu jianping, general manager of jiale technology, told reporters.
in recent years, 90% of jiadele technology's stainless steel purchases have been made through cooperation with chengpu metal, and the company has mastered the innovative trading model of basis point pricing. xu jianping introduced that the basis point pricing model can help the company save millions of yuan in procurement costs each year, and the stable supply of raw materials also helps the company further optimize production arrangements and improve price advantages, thereby continuously expanding overseas markets.
in general, the three-level circulation system of "shfe comprehensive business platform - dongwu jiuying - chengpu metal" has achieved initial results, providing a stable purchase and sales channel for stainless steel terminal enterprises in the yangtze river delta region, solving the difficulties of small and medium-sized enterprises in managing price risks, and promoting more real enterprises to use futures and derivatives tools for risk management.
"today, the scale of china's manufacturing industry accounts for about one-third of the world's total. more and more entrepreneurs recognize the important role of the futures market in managing risks, price discovery, and optimizing the allocation of social resources," said shi wei, general manager of soochow futures.
the relevant person in charge of the shanghai futures exchange said that as of mid-september 2024, the shanghai futures comprehensive business platform had a cumulative transaction volume of 750 billion yuan, 727 contracted traders, and a cumulative issuance of 5 billion yuan in online pledge loans for standard warehouse receipts, providing real enterprises with a safe, efficient and convenient one-stop service for online standard warehouse receipts. in the future, the platform will launch more innovative businesses, encourage more traders to promote the "three-level market circulation system" based on the platform, and help more small and medium-sized manufacturing enterprises reduce procurement costs and stabilize the supply of high-quality raw materials.
