Since the listing of urea futures on August 9, 2019, its price discovery and risk management functions have been gradually recognized by the market, and have played a positive role in the development of the industry. More and more urea companies have begun to actively participate in the futures market. Urea futures continue to be the industry Healthy development has injected "nutrients".
Helping the upgrading of traditional industries
Urea is not only an important agricultural commodity, but also a raw material for industrial products. It plays a very important role in the entire national economy.
Miao Hongde, head of Huduoli Agricultural Materials Co., Ltd., introduced to the reporter of Futures Daily that traditional urea trade faces many challenges. First, the market changes rapidly, and the spot urea fluctuates frequently, with an annual fluctuation range of 300-500 yuan/ton. The second is the large inventory. Large trading companies have a wide business coverage area, large scale of operations, and relatively high periodic inventory. Third, operating costs are high, and costs such as capital interest, freight, and warehousing have a significant impact on business operations. Fourth, there is a high risk of falling prices. Most companies adopt a business model of "light storage and strong sales", and generally face the risk of falling prices of reserve inventories.
Hongde Miao said that urea futures have brought many positive changes to industrial enterprises. First, the volatility of futures prices comes from the prediction of the fundamentals of the spot market. It is ahead of the spot market in the early stage, but the final trend is consistent, which can effectively help the industry find market prices. Secondly, companies based on their own operating practices and their understanding of market conditions, and compliant use of hedging in the futures market can actively promote companies to avoid the risk of falling prices. Third, the futures market margin system can effectively reduce the company's financial costs. Buying and opening positions through the futures market can help reduce storage costs, and the overall operating costs of the company can be effectively controlled. Finally, when the market fluctuates sharply, buying or selling can be realized through the disk, increasing the buying and selling channels.
In the eyes of industry insiders, currently, the entire urea industry faces not only equipment upgrades, environmental protection upgrades, and technological upgrades, but also the upgrade of corporate anti-risk capabilities.
"After the impact of the new crown pneumonia epidemic, the entire industry is facing the survival of the fittest in the production capacity structure. The industry has been in the replacement cycle of new and old production capacity in the past two years, and the epidemic may accelerate the elimination of old production capacity in the entire industry. Especially some small and medium-sized enterprises face greater challenges during the epidemic. Zhang Linglu, an analyst at Everbright Futures, said that, after the test of the epidemic, upstream and downstream urea companies have a deeper understanding of risk management, which also forces relevant companies to take the initiative to learn and understand the futures market.
Spot trading introduces futures "new ideas"
In the view of industry insiders, urea companies need to change the current traditional trade mode and make full use of the futures market. In addition to hedging, companies in the urea industry currently participate in the futures market. They also extend cooperative hedging and basis trading, which further enriches the spot trade model of the urea industry.
The traditional domestic urea sales model is a one-stop price, and the downstream can only passively accept it. In order to enrich the sales model and give downstream customers more choices and opportunities, Huilong's Nitrogen Fertilizer Division has explored the "basis contract" model.
According to Liu Jie, business manager of the Nitrogen Fertilizer Division of Huilong, the basis sales contract only stipulates the delivery month, basis level and price point period. Customers can refer to the futures market transaction price within the specified point price period and select what they want The price of the commission point price. After the company confirms the transaction at the commissioned point price, the final spot transaction price of the contract is "the futures price + the basis agreed by both parties."
"When the basis is determined, urea companies have already locked in profits. This model provides customers with greater choice and more pricing opportunities, which not only helps companies lock in profits in advance, but also brings customers more choices. , It is convenient for customers to use the futures market for risk management and realize a win-win situation for enterprises and customers." Liu Jie said.
In the combination of urea futures and cash, many companies with strong capabilities play an important role. They use their advantages to help upstream and downstream companies use financial means to manage their inventory to avoid risks.
"In January of this year, we participated in the first delivery and tried to do small winter storage in advance on the futures market. When spring ploughing comes, not only the problem of replenishment by downstream enterprises has been solved, but the risk of large fluctuations in raw material prices has also been avoided. During the sales period, we For the first time in the urea market, the point price transaction model was adopted, and the futures point price model was integrated into the entity enterprise.” Du Yanping, a researcher at Ningbo Shanju Industrial Co., Ltd., said that with the deepening of understanding, more and more urea companies Start using the basis price model.
"Internal and external training" to escort the enterprise
The reporter learned that before the listing of urea futures, many urea companies started active planning, participated in the urea futures promotion conference, established the company's futures department, established a complete process system and management system, and actively participated. Actively adapt to market changes and help enterprises develop stably.
"In the supply department, we have deployed dedicated personnel for the futures business and coordinated with the futures department to achieve the goal of risk control and cost reduction and profit increase." said Jiang Yuying, director of the futures department of Yuntu Holdings.
"Urea accounts for 20% to 25% of the cost of compound fertilizers, which is very important for the pricing and profit of the final product compound fertilizer." Jiang Yuying said, because the price of urea fluctuates greatly, and there is a clear decline in agricultural and industrial demand. In the peak season, it is necessary for companies to conduct active price management and inventory management to avoid market risks.
In Jiang Yuying's view, the raw material procurement of manufacturing and processing enterprises has a mature model, and the use of futures tools is a particularly effective supplement.
"At present, the commonly used buy-in hedging strategy of enterprises is mostly used in the peak season consumption period and winter storage period. The futures arbitrage strategy will appropriately manage inventory. In addition, enterprises will also choose some companies with strong comprehensive capabilities for price cooperation. "Jiang Yuying said that companies still have a long way to explore in the rational use of tools.
Henan Jinkai Group Business Manager Tian Kanglin also said that in the face of market price fluctuations, the use of futures tools to stabilize operations, avoid market risks, and achieve long-term stable development of enterprises will gradually become the mainstream awareness of the industry. In his view, with the help of urea futures and learning to "walk on two legs", companies can go more stable and longer.
In addition to the continuous strengthening of the company's own "internal strength", various service organizations represented by futures companies have played an active role in serving the urea industry through various channels and business innovations, and have become "good helpers" for urea companies.
"At present, the urea industry must find new ideas to solve potential problems. For companies, on the one hand, they need to continuously upgrade their technology, on the other hand, they need to innovate in their business models." Zhang Linglu said that with the help of urea futures innovating business models, Enhancing the enterprise's ability to resist risks will help the long-term and stable development of the urea industry.
In mid-to-late July, the exchange increased the authority for urea warehouse receipt transactions and temporarily waived the warehouse receipt transaction fees. This is a good innovative business direction for upstream and downstream companies in the urea industry chain. It will not only help spot companies increase sales channels, reduce the risks caused by poor inventory and spot sales channels, but also increase the activity of the urea futures market.
In addition, in addition to using traditional business models in the futures market such as hedging and cash arbitrage, companies can also implement the "basis pricing" trading model on a large scale in the spot market, so that futures can be truly integrated into the spot trade and the urea futures market "Live" can truly enable the long-term and healthy development of spot and futures.
Source: Chemical Network
