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

"At present, iron and steel enterprises take the low-cost route and are unwilling to make differentiation. They hope to squeeze out other iron and steel enterprises in this way. Some private iron and steel enterprises, especially those in the Yangtze River Delta, have been able to make very skilled use of futures tools." An industry source who declined to be named told futures daily.

New measures for steel enterprises to reduce costs

Taking Nangang, a private steel enterprise, as an example, according to Cai Yongzheng, director of the Securities Investment Department of the company, the decline in the sales price of main steel products of Nangang in 2015 led to a decrease in the main business income of 6.744 billion yuan, and the decline in the purchase price of main raw materials led to a decrease in the cost of 4.865 billion yuan. After the two data are offset, there is still a revenue "gap" of 1.879 billion yuan.

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

According to his introduction, in 2015, Nangang hedged iron ore, coke, nickel and rebar, reducing 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." Cai Yongzheng said that 30% of the company's monthly iron ore purchases will be bought and hedged in the futures market.

"Whether it is the iron ore futures of Dachang exchange or the iron ore swap of Singapore Stock Exchange, when the price of futures or swap is far lower than the spot price, under the condition of reducing the occupation of funds, we will try our best to establish a virtual inventory in the futures market, and purchase on demand in the spot market. After the iron ore is gradually in place, we will gradually close our positions in the futures market." Cai Yongzheng introduced.

At the same time, Nangang will also make some long lock price orders. For example, when they sign some long-term orders, customers will give them a deposit of 20% - 30%. They use these deposits for hedging in the futures market, which not only does not occupy the company's funds, but also locks in the profits of long orders.

According to reports, last year, Nangang made five long lock price orders. In the state of far month discount, they continued to buy in the futures market to hedge the far month. Overall, they lost 9.93 million yuan on the futures side, but made 45 million yuan on the spot side (falling iron ore prices) and 36 million yuan on the whole.

"On the whole, our price locking and long order effect is still good. When the market price fell last year, many steel mills reduced orders or even had no orders, and we still maintained normal production and operation." Cai Yongzheng said.

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

"This year, the price of iron ore will fluctuate in the range of 45-65 US dollars / ton. We may buy in the futures market or swap market below 50 US dollars / ton; when the price rises to more than 60 US dollars / ton, we may replenish our inventory 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, the inventory management of sales side is also very important. Cai Yongzheng said that in terms of inventory management, steel mills have their own advantages, because the spot information of steel mills is more informed than other institutions, and 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 preserve value and prevent the risk of price decline." Cai Yongzheng said.