Feasibility analysis report on developing commodity derivatives business
1、 Purpose and necessity of hedging business
As commodity prices are greatly affected by macro situation, monetary policy, industrial supply and demand and other factors. The sharp fluctuation of commodity market price has a great impact on the profits and losses of the company's own minerals, raw materials, main products and metal trade. In order to realize the policy of Yunnan Copper Co.Ltd(000878) (hereinafter referred to as Yunnan Copper Co.Ltd(000878) or the company) steady operation and complete the company's annual business objectives, the company needs to hedge the risks caused by market price fluctuations by carrying out hedging business.
2、 Main contents of futures hedging business
(I) the company and its holding subsidiaries will carry out hedging business corresponding to the main products of copper, gold and silver.
(II) the maximum margin of the company's hedging business at any time point shall not exceed 2.4 billion yuan, and the source of funds shall be its own legal funds.
(III) development mode of commodity derivatives business
1. Hedging varieties: copper, gold, silver, etc.
2. Hedging Market: Shanghai Futures Exchange, Shanghai International Energy Trading Center, Shanghai gold exchange, London Metal Exchange (LME), London Bullion Market Association (LBMA).
3. Hedged quantity: the hedged quantity shall not exceed 90% of the company's self-produced, purchased and sold physical quantity.
4. Hedging instruments: futures, options, etc
5. Contract term: no more than 12 months.
6. Liquidity arrangement and clearing and settlement principle: it is mainly to make capital preparation according to the maturity date corresponding to the establishment of position, and conduct purchase or sale liquidation according to the corresponding settlement price of futures exchange.
7. Payment method and liability for breach of contract: in case of breach of contract or transaction loss, it shall be settled by cash remittance on the due date.
8. Performance guarantee: guarantee in the form of futures trading margin.
(IV) investment period
From 2022 to the date when the company completes the review of commodity derivatives business in the next year and issues the announcement.
3、 Feasibility analysis of developing futures hedging business
The company's main products are cathode copper, gold and silver, and the required raw materials are mainly copper concentrate, crude copper and anode copper. Raw materials and products are highly correlated with copper, gold, silver and other futures varieties. The sharp fluctuation of copper, gold and silver prices will have a great impact on the profitability of the company. The company carries out the hedging business of commodity derivatives in order to avoid the impact of market fluctuations on enterprise costs.
Copper, gold and silver futures are mature varieties in the world and China, and hedging is also a common practice for the industry to control price risk. The company has formulated the Yunnan Copper Co.Ltd(000878) commodity futures hedging management measures, and the hedging work is strictly implemented in accordance with the system; The company establishes a futures business leading group to be responsible for the decision-making of major matters of the company's hedging business, the examination and approval of important futures hedging schemes and the examination and approval of annual hedging plans; The company's futures trading, risk control and other relevant personnel have passed the futures qualification examination.
To sum up, it is feasible for the company to carry out commodity derivatives hedging business, which is conducive to the company to avoid the risk of market price fluctuation in production and operation. 4、 Accounting policies and accounting principles
The company conducts commodity derivatives business, conducts corresponding accounting for commodity derivatives business in accordance with accounting standards for Business Enterprises No. 22 - recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 37 - presentation of financial instruments and accounting standards for Business Enterprises No. 24 - hedge accounting, and discloses the relevant information of the company's hedging business in regular reports.
5、 Risk analysis of commodity derivatives business
(I) market risk
The price fluctuates above the average level in previous years. The spot market direction is opposite to the hedging direction. If the spot profit is large, the hedging loss will be large. The company can only lock in the processing profit without market excess return. At the same time, there is a price difference between spot and futures contracts, there is a monthly difference between futures in different months, and there are two market differences in domestic and foreign futures markets. Hedging cannot achieve 100% risk control.
(II) capital risk
Due to the large short-term fluctuation range of market price and the centralized pricing of raw materials or spot, the short-term hedging quantity position is large, the capital demand is large, the short-term capital is insufficient, and the position is forcibly closed, resulting in actual losses.
(III) policy risk
Relevant regulations and policies of foreign regulators affecting hedging business shall be revised.
(IV) transaction risk
Risks caused by operating equipment failure; The risk of interruption of trading network; The risk of insufficient liquidity in futures trading months; The risk of futures being unable to trade when trading is suspended.
6、 Risk control measures for commodity derivatives business
(I) carry out hedging business in strict accordance with the measures for the administration of Yunnan Copper Co.Ltd(000878) commodity futures hedging. Improve and formulate the detailed rules for the implementation of futures and option hedging operations. Reasonably select the hedging month and market for hedging.
(II) prepare the capital budget in advance according to the specific situation of the company's hedging business and market factors.
(III) pay close attention to the changes of policies and relevant regulations of foreign regulators, and adjust the hedging business in advance according to its impact to avoid policy risks.
(IV) configure reliable trading equipment and provide a safe network trading environment; Select contracts with good liquidity.
7、 Conclusion
The company carries out the hedging business of commodity derivatives in order to avoid the impact of market fluctuations on enterprise costs and do not carry out speculation and arbitrage transactions. The company can use the price discovery and risk hedging functions of the futures market to avoid the risk of market price fluctuations and stabilize the profit level, Improve the company's sustainable profitability and comprehensive competitiveness.
To sum up, it is feasible for the company to avoid the risk of price fluctuation by carrying out the hedging business of commodity derivatives, which is beneficial to production and operation.
