Futures Hedging Strategy Formulation And Scheme Plan For Shanxi Coking Enterprise

As an important province with resources in China, Shanxi has agreat number of energy and chemical enterprises. As the pace of opening tothe outside world is quickening, the domestic enterprises are increasinglyclosely linked to the international market. Especially, the turbulence ofinternational financial market after the subprime crisis in the United Statescauses spurt or collapse in prices of bulk commodities. In view of this, it hasbecome a matter of primary importance to various enterprises that how thenative coking enterprises can mitigate the risk from external economy, fightoff the competition against foreign enterprises, avoid systematic risk and havea steady and fast development. The coking industry suffers from stress fromboth coking coal cost in the upstream and steel price in the downstream. Now,the price of coking coal is staying at a high level, while to the steel industrythe need for cokes decreases under the influence of energy conservation andemission reduction. So, the coking industry suffers from heavy losses. Mostof coking enterprises in Shanxi Province adopt the measure of productionrestriction with a limitation range between30%and50%. For cokingenterprises are confronted with high business risk, more and more concernsare given by them to the futures market for its unique functions of pricediscovery and risk avoidance. These enterprises utilize futures instruments forhedging, which will play a positive role in the healthy development of theseenterprises. Therefore, it is of very important practical significance that howto make a good use of futures market to effectively control risk and then tohelp coking industry step onto the road of virtuous cycle and sustainabledevelopment. From the view of risk management theory, this paper discusses enterpriserisk management by hedging theory. Firstly, it starts from the concept ofhedging and introduces some basic theoretical knowledge on hedging.Secondly, combining with the actual situation of coking enterprises in ShanxiProvince, this paper briefs basic information on cokes and details the generalsituation of coking enterprises in China. Then, with Shanxi coking enterprisesadopting hedging to avoid commodity price risk as the center, it researchesthe necessity, feasibility and significance as well as existing problems andrisks for Shanxi coking enterprises to participate in futures hedging. Finally,taking Shanxi Coking Co., Ltd. as an example, this paper discusses in detailvarious strategies of hedging and all aspects covered in the process of hedgingby combining particular production and business situation of the enterpriseand risks it faces based on recent coke market trend and at last presents adetailed and practical hedging program.The writing significance of this paper lies in not only presenting a set ofdetailed and feasible hedging solution to coking enterprises but also, moreimportantly, helping enterprises to be conscious of using modern financialderivatives to avoid enterprise risks and providing new thought to enterpriseson changing from passive business to take a proactive move.