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What is steel futures trading? What are the application scopes of steel futures trading?

Posted by: steel world 2023-10-12 Comments Off on What is steel futures trading? What are the application scopes of steel futures trading?

Taking into account the selection methods of the underlying objects of steel futures at home and abroad, and taking into account the actual situation of the Chinese steel market, the selection of the underlying objects of China’s re-listed steel futures should follow the following basic principles:

1. Adhere to the design idea of large varieties to make steel futures less susceptible to manipulation and maintain market stability so that the generated prices can truly reflect market supply and demand. 2. It should have high hedging efficiency and low hedging cost.

3. It should be able to truly reflect the dynamic trend of the entire steel market and fully reflect the steel industry structure and its changing trends.

4. There should be sufficient liquidity to attract incremental funds. If the circulation turnover of the subject matter of steel  1045 futures is slow, the trading of futures contracts will be deserted and the conditions for existence will be lost.

5. It should have broad development prospects, otherwise the existence cycle of steel futures will be very short, which is not conducive to the role of steel futures.

6. It is best to be in line with international standards, so that firstly, the risks of foreign trade can be reduced, and secondly, on this basis, China’s huge steel market can be used to influence the international market, thus ultimately forming a China-centered steel futures market. . Steel trade accounts for a large proportion of global merchandise trade volume.

The financial attributes of the globalized and highly efficient steel industry have become increasingly prominent. The open market has led to fluctuations in steel prices and supply chain disruptions, making transactions full of uncertainty, while the derivatives market has made it possible for companies to avoid these risks. The launch of steel futures will enhance the transparency of steel prices, allowing companies to better manage price risks, manage cash flow, predict profits and plan production more effectively. All companies in the steel industry chain can use the two futures varieties of wire rod and rebar to be launched for full or partial hedging.

1. Procurement risk The prices of iron ore and coke have continued to rise in recent years. According to statistics, the average steelmaking pig iron manufacturing cost of large and medium-sized steel production enterprises increased by 57.57% in the first half of this year. The manufacturing cost increased by 153 billion yuan from January to May, plus the period The total cost of rising costs and adjustments to export tariffs and rebate rates reached 234 billion yuan. However, the global economic downturn caused by the spread of the subprime mortgage crisis has also caused the price of iron ore to decline, and the ore purchased by companies in the early stage has also depreciated. As of October 15, the amount of iron ore shipped to the port has reached 89 million tons, which is in a super-saturated state, equivalent to 2-3 months of imports. Iron ore inventories in steel plants have generally reached more than 4 months. Unable to bear high costs and weak demand, the Tangshan area where small steel mills are most concentrated has reached 60% of production suspensions. Fluctuations in ore prices have greatly increased the risks of enterprises in the procurement stage. The risk is summarized as follows: after raw materials are purchased, but before process Introduction is completed or processing is completed but the finished products are not sold, the price of finished products declines or the prices of raw materials and finished products decline together. 2. Sales risk. Due to the high CPI index in my country in the early stage, stabilizing prices has become the top priority of my country’s economic work. Under the influence of this environment, corporate production costs have increased significantly, but they have faced relatively little increase in product sales prices. , squeezing the company’s sales profits. Recently, as macroeconomic control has caused the CPI index to fall, the price of iron ore has also begun to decline. However, the peak position of product sales prices has basically been determined, and there has also been a downward trend. Since the third quarter, domestic and foreign steel prices have fallen sharply from their peaks. , China’s steel prices such as rebar have dropped by 37%, which has also increased the company’s sales risks. The risks are divided into: falling sales prices or difficulty in selling finished products, which will directly affect the company’s sales profits. And because my country’s steel companies are increasingly dependent on imported iron ore, the price of iron ore is rigid. This also shows from the side that since the import pricing power of iron ore is not in the hands of my country’s steel companies, the steel companies can neither control costs nor lock in profits.

1. The use of “wire rod, rebar” futures varieties has strong reference significance. As the price fluctuations of raw materials and steel become more and more violent, the entire steel industry is calling for the listing of steel futures. However, due to the wide variety of steel products in our country, there are many difficulties if the steel products are listed in the futures market as a whole. Therefore, it is more feasible to choose two varieties such as ordinary wire rods and rebars. First of all, China is the world’s largest producer of ordinary wire rods and rebars. Secondly, the standards for ordinary wire rod and rebar are relatively simple and conducive to standardization of delivery. So can steel companies use these two “quasi-market varieties” to establish a new marketing model? The answer is yes. Steel companies can get the expected trends by analyzing the wire rod varieties currently listed on the futures market. That is to say, we can use the prices of listed futures varieties as a reference during the production and operation process to selectively conduct investment in the futures market. Value preservation strategy. In order to achieve the purpose of “walking on two legs” in the spot and futures markets.

2. Comparison of futures and spot marketing models. Secondly, due to the existence of settlement methods such as prepayment ordering and credit sales in the spot transaction process, this method greatly reduces the company’s capital liquidity and increases the funds that the company could use for reproduction, which is not conducive to the company. production and operation. And once the buyer defaults and refuses to pay the price, the seller’s company will bear all the risks and suffer heavy losses. Therefore, the sales method of credit not only increases the time cost of the enterprise, but also makes the enterprise bear a large degree of credit risk. If you choose to sell through the futures market, you can completely overcome the above shortcomings of spot trading. First, there was no breach of contract. After the seller registers the warehouse receipt in the futures market, once a buyer is willing to take delivery, a pairing will be formed in accordance with the relevant regulations of the commodity exchange, and then the two parties will hand over the goods within a certain period of time according to the regulations, fully realizing the “pay with one hand, pay with the other” “Goods” ensures the company’s sufficient liquidity. Once the cnc machining gas stove bottom joint is successful, if the buyer breaches the contract and refuses to accept the goods, the party will need to pay a certain proportion of liquidated damages and compensation to the seller in accordance with relevant regulations. Taking copper as an example, if the buyer breaches the contract, he must pay the seller 20% of the contract value as liquidated damages and compensation. For the seller, not only does he not lose the goods but he can also receive a relatively large amount of compensation. Secondly, it greatly improves the utilization rate of funds and reduces the cost of funds. The futures market is a margin transaction. Generally, only about 10% of the margin is needed to carry out buying and selling operations. If delivery is carried out, funds will be added as the delivery date approaches. Compared with spot, the capital cost can be reduced by about 75%. This enables enterprises to greatly improve the utilization rate of funds.

Third, there is basically no credit sales in the futures market, which avoids the “problem of difficulty in collecting accounts.” Since both buyers and sellers have to go through the futures exchange for final delivery in the futures market, the seller’s goods and the purchase funds must be recorded in the exchange’s account in advance, and the funds are transferred before delivery, thus avoiding the occurrence of credit sales. 3. Other advantages of the futures market (1) Expand sales channels. Delivery in the futures market is different from spot trading. The diversification of futures delivery methods also allows companies to use the futures market to establish marketing models, increasing their operational flexibility. Steel companies can also Through EFP business, spot sales can be realized in advance, and the futures market provides enterprises with unique advantages. (2) Provide arbitrage trading opportunities to conduct futures and spot arbitrage, cross-contract arbitrage and other methods based on the change in the price difference between futures steel prices and spot prices to increase the company’s operating model. For example, when the futures price of steel is higher than the spot price, it can be sold in the futures market. In this way, the operating company can not only realize normal profits, but also obtain additional spread profits when the futures price is higher than the spot price. The company can choose to close the position or Choose delivery.

(3) Facilitate inventory management The fundamental characteristic of the futures market lies in the difference in prices of various forward contracts, the tangible manifestation of which is commodity inventory. In the futures market, inventory value reflects the tangible costs of warehousing, capital costs, and expectations and judgments on the relative scarcity of commodities in the future. The first two directly manage the company’s product inventory. The quotations of futures contracts for different months provide a good reference for enterprise inventory management. According to the enterprise’s sales plan, virtual inventory can also be established in the futures market, and spot inventory can also be sold to preserve value.

4. When the following opportunities appear in the futures market, several strategies can be adopted

(1) Selling for hedging. When the futures price is overvalued or exceeds the company’s average sales target price, the company can take hedging operations to lock in the company’s normal profits and prevent profit losses caused by falling spot prices. shrink or lose money to ensure the normal production and operating profits of the enterprise.

(2) Maintain a certain inventory ratio, sell spot or near-term contracts at high prices, and buy forward contracts at low prices. When the recent spot price or futures contract price is higher than the forward futures price, and the company has a certain amount of inventory, the company can take The strategy of selling near and buying far can realize the conversion of actual inventory into virtual inventory, reduce the normal sales cost of the enterprise, and improve the capital utilization rate.

(3) Appropriately sell to forward contracts to maintain value. When the recent spot price or futures contract price is lower than the forward futures contract price, the company can appropriately sell to forward contracts to maintain value without affecting normal spot sales. After locking in Maximize profits while maintaining normal profits.

(4) Buying for hedging and forward virtual purchasing. When the futures price is underestimated, or lower than the company’s general cost, the company can use the futures market to buy for hedging and lock in costs.

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