Study On Copper Raw Material Hedging Strategy In Xiongli Cable Co.,Ltd.

Cable industry enjoys great annual yield but low concentration.Most of cable enterprises are small-and-medium size,to which hedging strategies are vital,as their profits might fall down greatly for copper price fluctuation.However,most of them could not carry it out successfully because of their low management level.A lot of researches have being done on hedging strategies,but few of them are fit for those cable enterprises.Therefore,it is significant to have a research on practical hedging strategies.The paper is a case study trying to set up a suitable copper hedging strategy for Guangdong Xiongli Cable Co.,Ltd.,which could also be taken as a reference for others.Based on the data from 2012 to 2015,the paper forecasts the demanding copper quantity to 533 t/m by moving average method,and sets up risk exposure as 87% of the demanding quantity under monthly stock.After the best hedging ratio is calculated out by minimum variance model and maximum utility model,the paper analyzes hedging performance of four different situations,which are with no hedging,with 1:1 hedging model,with minimum variance model and maximum utility model.At last,the minimum variance model is chosen as a better one deal to its profit and simplicity.The best hedging ratio is 0.9479,the best quantity is 533 ton,and the total profit is 56,880 Yuan.This strategy successfully avoids the price risk.The paper's contribution is that a hedging strategy has been put forward for all small-and-medium cable companies based on the case study of Xiongli.Its steps are as follow: The 1st step,set up a data system;the 2nd step,forecast monthly demanding quantity by forecasting model;the 3rd step,analyze the risk exposure;the 4th step,calculate the best hedging ratio;At last,chose the best hedging model by comparing the effect and simplicity of four strategies.The minimum variance model is better for cable companies.As it's based on a real case,this strategy could be used by other cable companies after adjusting according to their own operation.