Risk-aversion experience of cotton users through cotton futures
——Dr. Ji GuangpoSenior Specialist, ZCE
2015-08-07 10:09:01
Shaoxing Far East Petrochemical, formerly “Hualian Sanxin” and one of the top five PTA producers in China, is the joint venture founded by China Union Holdings Ltd., Zhejiang Zhangwang Share Co.,Ltd and Zhejiang Jiabaili Holding Group in 2003.
Dr. Ji Guangpo, Senior Specialist from Zhengzhou Commodity Exchange delivers his report of Risk-aversion experience of cotton users through cotton futures
Dr. Ji Guangpo, Senior Specialist from Zhengzhou Commodity Exchange delivers his report of Risk-aversion experience of cotton users through cotton futures
I. How to avoid price risk?
Dr. Ji firstly introduced how to avoid price risk via hedging. Based on seed cotton procurement costs, ginners can do selling hedge in futures market to lock processing profits. It is theoretically feasible when the futures price-costs of ginned cotton after processing-freight rate-warehouse receipt & storage costs-interest rate is larger than zero.
II. How to avoid policy risk?
Always concern about the government's macroeconomic regulation policy and take measures timely. The issue of any macro-control policy have a gestation period, such as No. 1 Central Document this year. To avoid policy risk,
III. How to avoid fund risk?
Capital risk mainly shows in shortage of funds and lack of liquidity or long-term idle funds. Users can register cotton inventory as receipts in futures market to increase capital utilization.
IV. How to avoid scale risk?
Scales always come in direct proportional to risks. The purpose of business is to optimize scales and minimize risks at the same time. Users can financialize business to accelerate capital turnover and increase liquidity.