Design Of Cross-variety Hedging Strategy For Iron And Steel Enterprises

Steel is the center of the ferrous metal industry,and changes in its price not only affect the profits of related companies,but also affect the stability and development of a country’s economy.China’s steel industry is facing multiple difficulties such as overcapacity,serious pollution,and low profits,forcing steel companies to actively seek breakthroughs and use futures and other derivative financial instruments to avoid risks and stabilize returns.Cross-commodity Hedging is a novel method in the current futures market.It relies on the correlation between different futures commodity in the industry chain,such as substitutes or upstream and downstream products,and uses the principle that the futures and spot price fluctuations of different commodities tend to be consistent to carry out corresponding operations.Composed of three commodities,rebar,iron ore and coke,which has a strong correlation,the steel production industry chain is suitable for cross-commodity hedging.This article takes the hedging case of company A’s “virtual steel plant” as the research object.First,it explains the cross-commodity hedging theory and introduces and analyzes the specific case of company A’s “virtual steel plant”.Then combined with the case of company A,it designs a set of cross-commodity hedging strategy of "virtual steel mill + long-term price lock order",in which the OLS,B-VAR,ECM and GARCH models are used to estimate the static and dynamic hedging ratio of rebar,iron ore and coke respectively.We select the optimal hedging ratio according to the principle of minimizing risk and determine the transaction timing,transaction quantity and transaction steps based on the actual production situation and historical data of the industry chain.Finally,this article conducts a retrospective test and result analysis of the strategy.Through the research above,the main conclusions obtained in this article are as follows: 1.The cross-commodity hedging strategy of "virtual steel mill + long-term price lock order" is feasible.This strategy not only helps to avoid the risk of spot price fluctuations,but also increases the total profit of rebar through hedging.2.In the selected time period,the optimal hedging ratio estimated by the OLS-ECM model,among which the hedging ratio of rebar is 0.35 and that of iron ore is 0.53,is more effective for avoiding risks.In addition,because the regression results of coke obtained by all models in this paper are not ideal,coke futures cannot be used to hedge.3.The timing of opening a position for cross-commodity hedging is when spot gross profit ≥440 RMB/ton.In summary,by cross-commodity hedging strategy,steel companies can reduce market risks and increase operating profits.The cross-commodity hedging strategy is not only applicable to the steel industry,but also has reference and guiding significance for all processing and manufacturing industries.