A Study On Using Futures In Nonferrous Metal Business

The continuous high speed increase of the domestic economy recent year leads to the continuous and prosperous requirement of nonferrous metals.The output of ten kinds of the nonferrous metals of china has surpassed America's since 2002 and has remained first of the world for three years. Hiking Group is the largest enterprise specialized in import and export in Shandong province. The total sum of import and export of Hiking Group reaches fifteen hundred million dollars in 2004. The import and export of nonferrous metal is one of the pillar business of Hiking Group. The sum of import and export of nonferrous metal has reached 5 hundred million dollars in 2004. The import and export of nonferrous metal belongs to staple trading. It is a little bit hard to deal with. Some problems can not be avoided in those daily trading. Firstly, the fluctuation of price. The frequent fluctuation of price is the foremost problem perplexed the traders. As long as there is a fluctuation of price, no matter rises or falls, it must be a great assault on the import and export trading. Secondly, the effect of natural resources and state policy. Recently the resources of nonferrous metal are very rare, so government arranges a lot of policy restraints. Several breeds adopt monopolizing operation. Macroscopic control also launched great effect on nonferrous metal industry. Thirdly, fund. The import and export of nonferrous metal needs a large sum of fund and the backup of bank and other provide, but those can not be guaranteed by nowadays banking system. The fundamental function of futures market: avoiding risk, rectifying the price , risk investment and reallocating of resource. There is a good order supervising the futures market. All those merits compensate the defects existed in the import and export of nonferrous metal. The appearance of futures exchange promotes the development of international trading of nonferrous metal greatly. There is no denying to the fact that entering into futures market is indispensable when the business of import and export of nonferrous metal developing to a certain level. To put it simply, the enterprises handling in the import and export of nonferrous metal have two main methods to take advantage of futures market: Hedging and Spread. Hedging is the main method to avoid the fluctuation of price; spread classified as interdelivery spread, inter market spread and inter commodity spread(spread between copper and aluminum).In spite of spread has no relation with cash transactions, spread is a good way of speculation with less risk Through the researching of the design and analysis of Hedging to make clear how to control the risk and special points in it. Through the researching of the design and analysis of interdelivery spread to make clear how to operate it and to avoid the risk during operating it. Through the researching of the design of inter market spread to make clear the theory and operating of it and analyze the relation between two markets; how to choose the chance to enter to the market; how to avoid risk and other ways to operate inter market spread. Through the researching of the design and analysis of inter commodity spread (spread between copper and aluminum) to make clear the method and thefactors that effect the fluctuation of the price. After recognized the feasibility of using futures market to handle the import and export, the article mainly discussing how to avoid and control the risk in the futures market. The risks of futures market are mutual effect of internal causes and external causes. Internal causes include the fluctuation of price, balancing effects of the margin, unreasonable speculation. External causes were caused by the imperfect macroscopic environment including prejudice about external causes; the defects of the design about futures market; lagging of the construction of legal system; imperfection of market economy system. The main methods to analyze and forecast the changes of risk about futures market are basic factors analysis and technical analysis. This article takes copper for example to illustrate basic factors analysis. Mainly discussing the effect caused by the supply and demand of international market; the supply and demand of copper in domestic market; condition of world economy; exchange rate; interest rate; price of oil; speculating fund and so on. Technical analysis belongs to subjective analysis, it does not consider the effects caused by economic factors but only consider the motion of price to forecast the changing trend of the price. Generally speaking, we should combine those two methods together to temper our working experience in order to grasp firmly the market quotation and to enhance the accuracy of our forecast. To avoid the risk in the futures market, we should analyze how the investors control the market and design a forecasting warning system respectively. The system contains 7 quotas: changing rate of total fund; concentration of the fund and so on .through these quotas to supervise andjudge the risk, we can make reasonable policy. The control of risk in futures market is mainly achieved by the control of fund and the optimization of operating tactics. This article provides a lot of generally approved managing experience and mature operating tactics. However, the control of risk can not be separated by actual operating. It requires every import and export enterprises to make the very scheme on the consideration of their business and test adjust improve during the course of operating to implement the control of risk.