Steel enterprises to reduce the cost and increase the efficiency of futures tools show the charm

In the past two years, many domestic steel enterprises have responded to the increasing operating pressure by reducing costs and increasing efficiency, and the role of futures tools in steel enterprises to reduce production costs has gradually emerged.

 

 

 

"At present, steel companies are all low cost routes, are not willing to do differentiation, and hope to squeeze out other steel companies in this way." Some private steel companies, especially those in the Yangtze River Delta region, have been able to use futures tools very skillfully." An industry person who did not want to be named told the Futures Daily reporter.

 

 

 

Steel companies have new ways to reduce costs

 

 

 

Taking private steel enterprises Nangang as an example, according to CAI Yongzheng, director of the securities investment Department of the company, in 2015, Nangang's main steel products sales prices fell resulting in a decline in the main business income of 6.744 billion yuan, the main raw material purchase prices fell resulting in a cost reduction of 4.865 billion yuan, the two data offset there is still 1.879 billion yuan of income "gap".

 

 

 

"The impact of the decline in the sales price of steel products on the company's efficiency is far greater than the impact of the decline in the purchase price of raw materials, which directly reduces the gross margin and operating profit of the company's products, resulting in losses." CAI Yongzheng said.

 

 

 

According to its introduction, in 2015, Nangang hedged iron ore, coke, nickel and rebar and other varieties, which reduced the company's losses to a certain extent.

 

 

 

"The impact of raw material procurement on us, so we take raw material procurement as the focus of hedging and work closely with the futures department." Mr. CAI said the company buys 30% of its iron ore purchases each month in the futures market for hedging.

 

 

 

"Whether it is the iron ore futures of DHK or the iron ore swaps of SGX, when the price of the futures or swaps is much lower than the spot price, in the case of reducing capital occupation, we will try to establish a virtual inventory in the futures market, and purchase on demand in the spot market, and gradually close the position in the futures market after the iron ore is gradually in place." CAI Yongzheng introduced.

 

 

 

At the same time, Nangang will also do some lock price long orders. For example, when they sign some long-term orders, the customer will give them a 20%-30% deposit, which they use to hedge in the futures market, so as not to occupy the company's funds, but also to lock in the profits of long-term orders.

 

 

 

According to reports, last year, Nangang made 5 single lock price long order, in the state of the far month discount, they continue to buy in the futures market, the far month hedge. Overall, they lost $9.93 million on the futures side, but made $45 million on the spot side (iron ore prices fell), making an overall profit of $36 million.

 

 

 

"Overall, our lock price long single effect is still good. Last year, when the market price fell, many steel mills had fewer orders or even no orders, but we still maintained normal production and operation." CAI Yongzheng said.

 

 

 

For the two raw materials of iron ore and nickel, Nangang will also do some strategic hedging according to its own judgment. Take iron ore for example, near the cost line of international mines or near the theoretical limit price, they will consider building positions in a certain price range.

 

 

 

"Iron ore prices will fluctuate in the range of $45 - $65 / ton this year, we may buy in the futures market or swap market below $50 / ton; When prices rise above $60 a tonne, we may restock in the spot market." CAI Yongzheng said that at present, iron ore futures or swaps have become one of the important tools for steel mills to reduce costs.

 

 

 

For steel mills, in addition to the cost management of raw materials, inventory management at the sales end is also very important. CAI Yongzheng said that in the inventory management, steel mills have their own advantages, because steel mills spot information is better informed than other institutions, they can slow down the pace of sales.

 

 

 

"If the futures price is a little higher than the spot price, steel mills can sell in the futures market to protect against the risk of falling prices." CAI Yongzheng said.