Research On Strategic Hedging Of Copper Enterprises In China

The copper price features increasingly frequent fluctuation and margin multiplied as the international macroeconomic environment has changed dramatically since2000. Copper enterprises in China cannot cope with the dramatic impact on the operational environment any longer with normal hedging method. Many such enterprises have faced with operation difficulties, and some of them even have been bankrupted or acquired. Therefore, a new hedging principle should be put forward to solve this problem. Under this background, Professor Qing Chang has put forward a hedging theory based on the economic cycle which is referred to as strategic hedging.Take the copper enterprises in China as an example, this thesis take the correlation between the copper price and the economic cycle as a core, and the internal operation rule between the copper price and the economic cycle is deeply researched through theoretical and empirical research to master the strategic hedging theory systematically, and verified the reasonability and feasibility of strategic hedging theory. In the content, firstly, the thesis analyzes the current situation on hedging of copper enterprises in China, points out the necessity and importance for strategic hedging, puts forward the concept of strategic hedging, deeply analyzes its connotation and theoretical basis, and also puts forward the core proposition that remarkable correlation between the copper price and the economic cycle has been verified in terms of actual evidence. Secondly, correlation between the copper price and the world economic cycle has been analyzed with actual evidences from three dimensions of significance, time-lag relation and synchronism, based on factors affecting the copper price. The empirical results show that there is instable synchronization between the world economic cycle and the copper price, with a gradual weakening trend, although copper is an international commodity. This mainly caused by significant changes on the world economic structure that Chinese economy has become the determinant affecting the copper demand, while the OECD global leading indicators which used to reflect the world economic cycle cannot well explain the change of copper demand and copper price. This also explains the weakened synchronization between the world economic cycle and the copper price.Meanwhile, to verify the preceding analysis conclusions and the reasonability of adopting strategic hedging based on Chinese economic cycle, the thesis also analyzes the relationship between Chinese economic cycle and the copper price with the same methods and dimensions. It is proved that Chinese economic cycle is prior to the world economic cycle in terms of significance, time lag relationship, and synchronization. That is to say, Chinese economic cycle is more significant than the world economic cycle in affecting the copper price. Besides, the increasingly enhanced impact of Chinese economic cycle on the copper price has been verified through the state-space time-varying model in this thesis. These results from empirical research provides solid theoretical and empirical basis for the strategy hedging in copper enterprises in China based on Chinese economic cycle. Finally, the thesis analyzes feasibility of strategic hedging for upstream, midstream, and downstream copper enterprises, constructs corresponding strategic hedging strategy using the existing basic hedging tool, and contains retrospective analysis on performance of strategic hedging. The retrospective verification result shows that strategic hedging, comparing with non-strategic hedging, brings much more outstanding performance for copper enterprises in China.Innovation of this research includes the following two aspects:1) This thesis analyze the rationale and feasibility of strategic hedging comprehensively and systematically from both theoretical level and empirical level.2) This thesis comprehensively analyzes the relationship between the copper price and the world economy and even Chinese economy, with a conclusion that the impact of Chinese economic cycle on the copper price gradually increased. Therefore, the strategic hedging based on Chinese economic cycle for copper enterprises in China is reasonable, feasible, and reliable.