West Mine Zinc Industry flexibly uses zinc options
Inventory management realizes cost reduction and efficiency increase
Zinc Industry Branch (hereinafter referred to as Zinc Industry Branch) under Western Mining Co., Ltd. is a modern non-ferrous metal processing enterprise focusing on zinc smelting, with an annual production of over 100,000 tons of zinc ingots. In 2021, the Shanghai Futures Exchange’s “Entering Enterprise Service Entities” activity, the Zinc Industry Branch tried to use zinc options on its production inventory, accumulatively increasing the company’s income by nearly 4.5 million, which greatly reduced the company’s hedging costs. Effectively ensure the stable production of enterprises.
Case introduction
2021,Zinc priceThe overall market fluctuated greatly. As a production-oriented enterprise, the Zinc Industry Branch produces nearly 10,000 tons of zinc ingots per month, and the fluctuation of zinc prices has a great impact on the production and operation of the enterprise. For this reason, in recent years, the Zinc Industry Branch has actively used futures to carry out hedging, and has formed a mature trading team, a sound organizational structure and a risk control system, and achieved good hedging effects. However, in the process of futures hedging, companies also face problems such as a single hedging plan and a large amount of funds. For this reason, the Zinc Industry Branch tried to use zinc options to carry out risk management according to the production and operation conditions. The main strategy was to use spot coverage and sell call options month by month to save money and increase profits.
This strategy is mainly based on market judgments, selling call options in a timely manner, reducing hedging costs, and even if the option is exercised, it can be converted into a corresponding position to sell spot at a high price, achieving the purpose of increasing income.
For example, from May to September 2021, it is expected that the overall trend of zinc prices will fluctuate in a range, and the price will be in the range of 22,000 yuan/ton-24,000 yuan/ton. In addition to futures hedging, the Zinc Industry Branch also sells call options for the raw materials in stock produced in daily workshops. By selling call options month by month, Zinc Industry Branch earned nearly 1.23 million yuan in premiums, achieving the effect of continuous rolling and continuous income, and reducing hedging costs.
In addition, combined with production and procurement plans, Zinc Industry Branch sold put options in a timely manner to reduce procurement costs. For example, from September to November 2021, it is expected that the zinc price will remain in a range in the short term, but it is still possible to break through the upward trend. Combined with the selling call options against the exchange rate, a wide-span arbitrage combination was formed, and the cumulative comprehensive income was nearly 3.1 million yuan, and the goal of reducing both purchase and sales costs was achieved.
Overall situation and effect
On the whole, from May to November 2021, the zinc industry branch flexibly used zinc options on the production inventory of the enterprise to increase income and save money, and achieved good results. According to the production plan and the market situation, the Zinc Industry Branch sold call options and put options in a timely manner, which increased the income by nearly 4.5 million yuan and greatly reduced the hedging cost of the company, helping the company’s production and operation.
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