The epidemic has put pressure on the operations of many physical enterprises and faces unknown price risks. At this time, some spot companies cleverly made use of the futures market and through model innovation, improved the protection of their production and operations during extraordinary times.
Model innovation
Shanghai Textile Investment Trading Co., Ltd. (hereinafter referred to as “Shanghai Textile Investment”) is a wholly-owned subsidiary of Oriental International Group, a large state-owned enterprise directly under the Shanghai State-owned Assets Supervision and Administration Commission. Its business mainly involves the import, export, and re-export trade of bulk commodities such as cotton. It operates more than 200,000 tons of cotton annually, and its annual main business revenue is nearly 20 billion yuan. Due to its extensive experience in utilizing cotton futures, PTA futures and other varieties, this company was named the first batch of “Industrial Bases” of the Zhengzhou Commodity Exchange in 2019.
Although the epidemic is fierce and coincides with the Spring Festival, which has a great impact on the cotton-related industry, Shanghai Textile Investment actively uses the futures market to carry out Model innovation not only ensures its own stable operations, but also provides effective solutions for customers upstream and downstream of the industry chain.
After the outbreak, the Shanghai Textile Investment business team communicated with many textile enterprise customers in Jiangsu, Anhui, Hubei and other mainland China before the futures market resumed trading on February 3. They found that most companies’ cotton inventories can only last for one week, and under the background that trading in the spot market has been suspended and inter-provincial highway logistics has been strictly controlled, the downstream industry chain is extremely anxious about cotton procurement. Subsequently, Shanghai Textile Investment combined its market participation experience and believed that the futures price of Zheng cotton may find a bottom after the holiday, but the low price is also a good purchasing opportunity. Based on this, Shanghai Textile Investment has customized various solutions for some downstream customers.
On the first trading day after the Spring Festival, the prices of most domestic varieties fell sharply, and cotton futures prices were no exception. Zheng Cotton’s main 2005 contract closed at the lower limit, and opened sharply lower the next day, hitting a record of 12,130 yuan/ton. reached a new low in the past four years, but a restorative rebound occurred in the following days.
At this time, Shanghai Textile Investment used its own “seed cotton cover” model to timely hedge cotton resources during the acquisition process, lock in processing profits, and follow the established plan of point-price sales to be carried out in the futures market in a timely manner after the holiday. Low position closing operation.
The so-called “seed cotton cover” is an innovative business launched by Shanghai Textile Investment in 2019. In the acquisition process, factors such as seed cotton, cotton seeds, futures market, quality premiums and discounts are combined to determine the hedging costs and lock in profits. This business closely links the acquisition of seed cotton with the futures market, hedging in advance, guiding the acquisition, locking in profits, and effectively avoiding the risk of a short and crowded hedging window during the concentrated listing period of new cotton.
Actively make use of the off-site platform
Making good use of the off-site market and walking on two legs is Shanghai Textile Investment is another key to being able to calmly deal with market risks during special periods.
At present, cotton-related companies have generally participated in the futures market, and more and more spot goods exist in the form of standard warehouse receipts. As of February 14, 2020 On the same day, Zhengzhou Commodity Exchange’s cotton warehouse receipts (registration + forecast) exceeded 42,500, totaling more than 1.7 million tons, continuing to set historical records, accounting for more than 30% of the entire cotton commercial inventory during the same period.
In order to comply with the development trend of market integration of futures and cash, the comprehensive business platform of Zhengzhou Commodity Exchange relied on the existing warehouse receipt trading model and introduced the participation of Shanghai Pudong Development Bank in 2019 to innovatively launch the standard warehouse receipt buyout repurchase business. model. Customers can directly interface with the bank to realize T+0 transfer of funds, obtain financing on the same day, and guide the cost of warehouse receipt financing funds to decrease in corporate procurement, sales, inventory revitalization and other aspects, achieving the dual effect of increasing efficiency and reducing costs, and further Promoted the integration of industry and finance.
Based on this business, before the Spring Festival holiday in 2020, Shanghai Textile Investment Co., Ltd. traded 4,493.944 tons of cotton warehouse receipts through the comprehensive business platform of Zhengzhou Commodity Exchange on January 21 in order to cope with the risk of potential market changes during the holiday. , obtaining more than 50 million yuan in liquidity that day. After the Spring Festival holiday, the futures market began to ferment due to the impact of the epidemic. At this time, Shanghai Textile Investment already had sufficient liquidity to cope with market risks. According to statistics, Shanghai Textile Investment pledged a total of 44,815.517 tons of cotton standard warehouse receipts from February 3 to February 14, obtained more than 450 million yuan in liquidity, and repurchased 22,096.233 tons of warehouse receipts.
A person in charge of Shanghai Textile Investment told reporters that the extraordinary measures taken during these extraordinary times are based on the correct understanding and rational use of the futures market on a daily basis. If we lay down the foundation, we will have more room for maneuver at critical moments, and we will have more weapons to deal with market risks.” </p