From March 23rd to 27th, the "Future Forum Industry Salon Group Meeting and the Fourth Sakura Forum-Steel Warfare Epidemic" organized by Shanghai Futures Exchange in conjunction with Mayer Futures was broadcast live online. On March 26, Lao Hongbo, deputy general manager of Hangzhou Thermal Union Group Co., Ltd., said in the forum that the production, sales and downstream procurement of steel were significantly affected by the epidemic, and the risks faced by all links in the industrial chain were With the increase, and the current domestic epidemic situation has not ended, and the foreign epidemic situation has become serious, the uncertainties facing both the supply and demand in the future are increasing. He introduced the value of derivatives and their application in steel trade. Industrial companies can combine their own reality and choose effective derivatives tools to avoid risks and reduce costs and increase efficiency.

Derivatives are huge

What can derivatives bring to industrial enterprises? Lao Hongbo gave an example of an enterprise.

Suppose there is a factory specializing in the production of iron cups, the price of an order received is 10 yuan / piece, the cost of raw metal sheet is 8 yuan / piece, and the processing fee is 1 yuan / piece, then the profit is 1 yuan / piece. After the order is completed, the customer feels satisfied and intends to sign a one-year purchase contract, purchasing 100,000 per month. For this order, the factory has the following methods to deal with: First, do not accept this order. The factory is worried that after one year, the cost of raw metal sheet rises to 15 yuan / piece, plus the processing cost, then every cup produced will lose 6 yuan, and the factory may close down. The second is to take this order. The factory needs to hoard all the iron sheet to be used for one year, and the raw material cost totals about 1.2 million yuan. In addition to the cost of hoarding the factory, each cup can have a profit of 0.5 yuan. The third is that the factory has judged based on its 20 or 30 years of experience that the price of raw materials will fall in the future and decided to take a bet to take the order. In reality, there are two possibilities in the future. If the price of raw materials falls, the factory will get a profit of more than 1 yuan. However, if the price of raw materials rises, the factory may have a large loss.

Lao Hongbo believes that with derivatives, if a company can provide derivatives services, it will extract raw materials at a fixed price of 8 yuan per month on the 1st of each month. It is valuable to the owners who adopt the first method and the second method. The first type of owners, who did not take this order, can now take this order and fix the production profit. The second type of owners can reduce the cost of hoarding raw materials.

He emphasized that derivatives can do two things: First, things that traditional business models couldn't do before, derivatives can help companies do it. Derivatives can help companies improve efficiency and reduce costs. Future production and operation activities may imply risks. By using derivatives to reduce risks and smooth out fluctuations, companies can maintain stable production capacity. The second is that the traditional business model did bad things before, and derivatives can help companies do well. Especially with derivatives, companies can take the initiative to take forward orders.

In addition, derivatives can also meet the industry's hedging and efficiency needs. Lao Hongbo believes that, compared with those similar enterprises that cannot use derivatives, if the derivatives are used well, the enterprises have an advantage. Derivatives can avoid risks, that is, use derivative tools to lock in raw material costs and avoid order losses; they can also increase efficiency, that is, after locking in lower forward raw material costs, companies can take orders that their peers dare not take. Enterprises can take the initiative to quote and take orders, expand market share, and actively provide customers with more valuable and in-depth services.