Commodity Enterprise Risk Managemen

As China rise,the Chinese enterprises’ international business activities are becoming more and more frequent.As a big resource-consuming country,China has accelerated construction in various aspects with rapid economic development.A large number of basic resources oversea,especially bulk commodities,need to be imported.At the same time,the development of economic globalization,which make our country face with increasingly complex economic environment,make the international trade form more complicated.The commodities’ price fluctuations,as a reflection of the macroeconomic,are becoming more and more intense.With the uncertainty the enterprise in face of becoming more and more,we should pay more attention to the Enterprise Risk Management(ERM).How to effectively do a good job in risk management,how to avoid or minimize the negative impact due to commodity price fluctuations on the profit of Chinese enterprises,are the questions we have been discussing.A series of huge "Hedging Loss" events in China’s trading history also keep us remind of the importance of risk management.Enterprise Risk Management is not only about hedging,but also about managing other risks in the process of hedging,such as operational risks,system loopholes and regulatory risks.In the past two years,Chinese State-owned SASAC has successively issued notices on the management of financial derivative business for central enterprises to guide China’s central enterprises to carry out enterprise risk management more effectively.The consumption of the electrolytic copper in our country(copper,electrolytic copper,cathode copper is refer to the same products in this paper)is the second largest just after aluminum.Copper also has a strong financial attributes at the same time.The hedging management of Copper for large enterprise in our country has the typical significance due to Copper’s mature futures markets and frequent international trading.Taking electrolytic copper as an example,this paper discusses the relationship between commodity futures and spot through studying the formation and development of futures market and the role of futures market,and proves that futures market can avoid price risk for commodity enterprises.We also compared the differences of systems 、the trading patterns and the copper futures between London Metal Exchange and Shanghai Futures Exchange.By comparing the copper futures price trends and trading volumes,we can see that,during the last two years,the copper futures price trends are similar,but the Shanghai Futures Exchange copper futures volume is huge,which can undertake the safe-haven demand for enterprise price risk management in our country.By studying the commodity enterprise risk management theory,hedging risk management theory,this paper discusses theoretical basis of risk management that the present enterprises of commodities can rely on,including 《 Enterprise Risk Management: Integrating with Strategy and Performances(June 2017)——COSO(Committee of Sponsoring Organizations of the Treadway Commission)》、《 ISO31000 Risk-Management 》、《 Accounting standards for Enterprises No.twenty-fourth – hedging》and other relevant guidance in our country.This paper discusses the specific process of hedging risk management of bulk commodity enterprises in China.Combined with the current situation of electrolytic copper trade and market situation in China,we analyze the risk exposure of electrolytic copper trade and verify that the necessity of risk management for electrolytic copper enterprises by hedging business is demonstrated.For hedging effectiveness of the research,production enterprises purchase electrolytic copper,for example,this paper respectively by static OLS model,the ECM error correction model,dynamic BEKK-GARCH model,estimating of domestic procurement of electrolytic copper and overseas procurement of electrolytic copper by the Shanghai futures exchange to hedge exposure of the optimal hedging ratio,the optimal hedging ratio of electrolytic copper in different markets under different models is obtained.Then,the least variance method is used to compare the hedging efficiency and effectiveness of different models of electrolytic copper.The empirical analysis results show that no matter which model is adopted,domestic and overseas electrolytic copper can effectively avoid price risk through Shanghai Futures Exchange.At the last,through the theoretical research and empirical analysis of hedging and risk management,the author puts forward his own suggestions in three aspects of state,enterprise,and other economic companies,such as future companies,risk hedging institutions and financial institutions.It is hoped that the government can provide policy and legal support to promote the development of China’s futures market,improve the investor structure,establish a credit risk system,pay attention to the cultivation of localized information intelligence agencies,cultivation risk management personnel,and support the local information industry.And the Enterprise itself should have risk management consciousness,establish a comprehensive risk management system.Control the risk in the whole process of business operations through system setting up,process management,specialization and informationization construction.After that,the People、Machine、Institution and the Risk Management System all can form a complete organism with collaboration and fusion.Thus,integrate risk management into the entire enterprise life cycle.At the same time,we hope that the third party service enterprises can improve their professional ability,their service level and the credit management,educate the investor,serve the general entity enterprise.So the futures market can service entity enterprise,provide hedging tools,and help promote the development of industry in our country.