Shanghai Nar Industrial Co.Ltd(002825)
Feasibility analysis report on carrying out commodity futures hedging business I. purpose and necessity of carrying out commodity futures hedging business
Shanghai Nar Industrial Co.Ltd(002825) (hereinafter referred to as “the company”) and its subsidiaries (including wholly-owned subsidiaries, holding subsidiaries and other subsidiaries within the scope of consolidated statements, hereinafter collectively referred to as “subsidiaries”) carry out commodity futures hedging business, mainly to make full use of the hedging function of the futures market and effectively control market risks, Avoid the adverse impact of large fluctuations in raw material prices on the company’s operation, reduce the losses caused by adverse changes in commodity prices, improve the company’s overall ability to resist risks and promote the stable and healthy development of the company. 2、 Basic information of commodity futures hedging business
1. Types of commodity futures hedging business
The types of commodity futures hedging business carried out by the company and its subsidiaries are commodity futures contracts such as resin powder and other chemical raw materials that are directly related to the production and operation of the company.
2. Source and amount of funds
In 2022, the maximum margin of commodity futures hedging business to be carried out by the company and its subsidiaries is RMB 30 million (excluding the physical delivery of futures), which can be recycled within the limited amount. The source of funds is the company’s own funds and does not involve raised funds. The company will strictly implement relevant procedures according to commodity supply and demand, market price trend, raw material demand and turnover and the company’s internal control system.
3. Business period
Within 12 months from the date of adoption by the board of directors.
3、 Feasibility analysis of carrying out commodity futures hedging business
1. The company’s hedging business of resin powder and other commodity futures can avoid the adverse impact of large-scale fluctuations in raw material prices on the company’s operation and effectively avoid the risk of large-scale fluctuations in prices.
2. The company has formulated the management system of futures hedging business in accordance with relevant laws and regulations such as the stock listing rules of Shenzhen Stock Exchange (revised in 2022), the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 7 – transactions and related party transactions, and the basic norms of enterprise internal control, As the internal control and risk management system for commodity futures hedging business, we have established a more comprehensive and perfect internal control system for commodity futures hedging business, implemented risk prevention measures and operated prudently, and have preliminarily accumulated practical experience in commodity futures hedging business.
3. The company uses its own funds to carry out commodity futures hedging business, and does not use the raised funds to carry out commodity futures hedging business directly or indirectly. The margin scale invested in the planned commodity futures hedging business matches its own funds, operation and actual needs, and will not affect the normal operation of the company.
4、 Risk analysis of commodity futures hedging business
Commodity futures hedging can effectively manage the purchase price risk of raw materials, especially reduce the value loss caused by higher inventory when the price of raw materials falls sharply, and reduce the opportunity loss of unable to build a warehouse quickly due to the shortage of market supply when the price of raw materials rises sharply. However, there are certain risks in the development of commodity futures hedging business:
1. Risk of abnormal price fluctuation: theoretically, the futures market price and spot market price of each futures trading variety will tend to return to the same when it is close to the delivery period, but in a very few irrational market situations, the futures and spot prices may still not return during the delivery period, which will affect the company’s hedging operation plan and even cause losses.
2. Capital risk: futures trading adopts margin and mark to market system. When the market changes sharply, it may cause capital liquidity risk, and there may be actual losses caused by forced closing positions due to lack of time to supplement margin.
3. Internal control risk: hedging transactions are highly professional and complex, which may lead to risks caused by imperfect internal control system.
4. Technical risk: technical risk may be caused by incomplete computer system.
5. Policy risk: major changes in futures market laws and regulations and other policies may cause market fluctuations or inability to trade, resulting in risks.
5、 Risk control measures taken by the company
1. The company has formulated the futures hedging business management system, which clearly stipulates the approval authority, operation process, risk control, information disclosure and other aspects of the company’s commodity futures hedging business. All measures are practical and effective, can meet the needs of actual operation, and meet the relevant requirements of the regulatory authorities. 2. The company’s commodity futures hedging business scale will match the company’s business operation to hedge the risk of price fluctuation to the greatest extent. Commodity futures hedging transactions are limited to commodity futures related to the company’s production and operation business.
3. The company opens a commodity futures hedging trading account in its own name, uses its own funds, and will not use the raised funds to hedge commodity futures directly or indirectly. The company will fully consider the fluctuation range of futures contract price, strictly control the capital scale of commodity futures hedging, reasonably plan and use margin, supervise and control the investment proportion of margin, continuously pay attention to the risk degree of futures account in the process of position holding, and make preparations for margin recovery, A certain proportion of risk reserve shall be reserved to ensure that the margin is replenished in time in case of losses in the hedging process of the current period, so as to avoid being forced to close the position when the funds in the futures account cannot meet and maintain the hedging position; When the market fluctuates violently, close the position in time to avoid risks.
4. The company will arrange and use professionals in strict accordance with the relevant internal control system, establish a strict authorization and post restraint mechanism, strengthen the professional ethics education and business training of relevant personnel, and improve the comprehensive quality of relevant personnel.
5. The Audit Department of the company shall regularly and irregularly inspect the commodity futures hedging trading business, supervise the commodity futures hedging trading business personnel to implement the risk management system and risk management procedures, and timely prevent the operational risks in the business.
6、 Impact of the proposed commodity futures hedging business on the company
The commodity futures hedging business proposed by the company and its subsidiaries is limited to products related to production and operation. The purpose is to use the price discovery and risk hedging functions of the futures market, use hedging tools to avoid the risk of market price fluctuation, ensure the stability and sustainability of the company’s operating performance, and do not engage in speculative transactions, It will not affect the normal development of the company’s main business.
The commodity futures hedging trading varieties to be carried out by the company and its subsidiaries are the mainstream varieties in the main futures market, with high market transparency and active transactions. The transaction price and the settlement unit price on that day can fully reflect its fair value. In accordance with the relevant provisions and guidelines of the accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 24 – hedge accounting, accounting standards for Business Enterprises No. 37 – presentation of financial instruments and accounting standards for Business Enterprises No. 39 – fair value measurement issued by the Ministry of finance, Conduct corresponding accounting treatment for the commodity futures hedging business to be carried out, and reflect the relevant items of the balance sheet and income statement.
7、 Conclusion of feasibility analysis on carrying out commodity futures hedging business
The company and its subsidiaries carry out commodity futures hedging business to avoid or reduce losses caused by adverse changes in commodity prices, reduce the impact of adverse changes in commodity prices on the normal operation of the company, and do not carry out speculative arbitrage transactions; The company has established a relatively perfect internal control system and risk management mechanism, and has its own funds matching the commodity futures hedging business; Carry out business in strict accordance with relevant laws and regulations, implement risk prevention measures and operate prudently. To sum up, the company believes that it is feasible to carry out commodity futures hedging business.
Shanghai Nar Industrial Co.Ltd(002825) board of directors February 22, 2022
