The following is the speech of the vice president of the oil department of COFCO.
China's oil industry is developing in step with the future oil industry. So far, China's oil industry can be said to be one of the industries that are closely combined with the future and the present. Today, our oil industry is basically inseparable from the futures market. Petroleum enterprises mainly use the futures market in four aspects, which are mainly reflected in their daily operation and management.
First, use the futures market to buy raw materials and price them. There are two methods: 1, direct pricing mode. 2. Indirect pricing model; This model is widely used in negotiated pricing between buyers and sellers, such as rapeseed oil pricing.
Second, use the futures market for product sales pricing.
There are also direct pricing and indirect pricing. So far, direct pricing is still relatively few, mainly indirect pricing mode. Soybean meal, soybean oil, rapeseed oil and other varieties basically adopt indirect pricing model. For example, our department basically releases the sales price to customers every day 10: 15, that is, after the first half-time trading, because the whole futures market had been trading for some time at that time, the price basically stabilized. At this time, we began to release the spot price to the market, which is determined by futures. Our price release is based on the daily futures price.
Third, use hedging to arrange our production schedule.
For example, it takes a long time for us to import raw materials from procurement, transportation, storage, processing to sales. Generally speaking, it takes three months to import raw materials from abroad, so the whole market operation should be arranged in advance and carefully planned. Since our factory is basically as accurate as a chain, we all plan by the day. For example, the East China Sea grain and oil can be processed 1 10,000 tons a day. If a few days are missing, it would be a big mistake. If the shipping schedule is arranged early, it may need tens of thousands of tons of inventory, or it may be arranged late, and there will be a difference of tens of thousands of tons. So our process must be carefully arranged. Now there is arbitrage between forward spot contracts and futures. I may order a lot of spot contracts, but I also have a lot of futures contracts. After ordering this thing, this problem will be easily solved. We usually purchase in advance, price in advance, and then lock in the proportion through this hedging in advance. After this process is completed, the next step is the logistics production process, and all links are done by futures, so that production and operation can be arranged, which is really efficient.
Fourth, scale operation through hedging to enhance the competitiveness of enterprises.
Generally speaking, hedging, as a very important means, operates in the risk control of enterprises. Then, our concept of risk management is like this. We combine hedging with market analysis, constantly adjust hedging strategy, raise risk control to management level, control hedging risk, and raise this "control" to management level. Through risk management, we can create higher profits for enterprises and enhance their core competitiveness. There are several other situations. For example, in the first case, when the market is obviously bullish, the amount of our hedging will be less than the spot amount, and the rising market will bring greater profits to the enterprise, including inventory, including transportation, and the contracted amount that has been priced but not yet paid. We should calculate the amount of futures we should do according to this. In the second case, when the market is obviously bearish, it is necessary to hedge in strict accordance with the contract at this time, which has a certain effect on preventing the price from falling. The third situation is when the market is really not obvious. At this time, we set a fluctuation range to operate, and we will be familiar with repeated operations. Through repeated adjustment, the cost can be reduced and the transaction can be improved. When many people are learning hedging, they think that hedging may be a brainless hand transaction. Through years of practice, we believe that this approach may make the competitiveness of enterprises at a medium level and be passive in the rising market, because on the one hand, it may lose relatively large and favorable opportunities; On the other hand, because hedging will lose a lot of cash, it often faces the risk of adding a lot of hedging, and sometimes the funds may be lost too late. Therefore, hedging must be combined with the market itself and managed well, which is a great experience for us.
Of course, there is a premise for this practice, that is, we must have a strong grasp of the market and strong team support. In the final analysis, we must have management personnel, otherwise it will increase risks if it is not done well. In other words, when we analyze, hedging depends more on the judgment ability of the futures market, which we think is a double-edged sword. In the past five or six years, the operating profit of our oil department was the highest in COFCO. Except for the year of the financial crisis in 2008, our hedging has been losing money for many years. So many people often ask a question, if you don't do this futures, doesn't it mean you have to earn more money? This has strengthened the correct evaluation of this market by our team and boss. Basically, one of our arguments is that if there is no hedging escort, we can't be sustained and stable for so many years, and it is basically impossible to make such a big profit. Therefore, we believe that hedging is necessary as a kind of risk management, just like buying insurance, it is a tool and a practice. We are fortunate that the entire leadership of COFCO is more supportive of this matter.