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    Home > Chemicals Industry > China Chemical > Thermal coal futures ease the urgent need for power plants to burn "coal"

    Thermal coal futures ease the urgent need for power plants to burn "coal"

    • Last Update: 2022-07-02
    • Source: Internet
    • Author: User
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      With the gradual maturity of the thermal coal futures market, the active participation of industrial companies, and the increasing awareness of risk management, many companies flexibly use futures tools for hedging and inventory management based on their own needs, effectively meeting the needs of companies to reduce costs and increase efficiency.


      Flexible hedging of coal power companies to reduce costs and increase efficiency

      through hedging to hedge the spot market risk is the main way for many entities to participate in the futures market.
    Over the past 7 years since the listing of thermal coal futures, coal-fired power companies have gradually established the concept of risk management.
    At the same time, they have accumulated a lot of hedging experience based on their actual conditions, which has played a significant role in reducing costs and increasing efficiency of coal power companies.


      Coal fuel costs account for about 70% of the cost of thermal power generation companies, and reducing coal procurement costs is a key measure for power generation companies to improve their overall benefits.
    Take a power plant in Jiangsu as an example.
    In the fourth quarter of 2016, coal spot prices rose rapidly, reaching a maximum of 730 yuan/ton.
    At the same time, affected by the insurance supply policy and the expected increase in production, the company researched and judged the thermal coal futures price to fluctuate below 650 yuan/ton for a long time.
    In order to lock in the cost of coal, the power plant and Jinying Capital launched a cooperative hedging, purchased and hedged through the 1701 thermal coal futures contract, and finally realized a profit of 9.
    5 million yuan, which reduced the purchase cost of the company by more than 80 yuan/ton, and achieved cost reduction and increase.
    The main purpose of effectiveness.


      Under the background of responding to the national policy to guarantee long-term coal supply, state-owned coal production enterprises, as the pioneers in fulfilling their social responsibilities, urgently need risk management tools to deal with coal price fluctuations and lock in profits.


      Yuntianhua Group is a comprehensive state-owned holding company and one of the earliest domestic companies that participated in thermal coal futures.
    Since the coal supply-side reform in 2016, when coal spot prices fluctuated, the company used futures tools to hedge its spot positions and achieved good results.
    The relevant person in charge of the company told a reporter from the Futures Daily that when the coal spot price is at a high level, the company will use the current price difference as a reference to adjust the pace of spot purchases.
    At the same time, the spot purchase price will be locked through the futures market.
    The monthly spot price difference has converged, and the company avoids the risk of spot price fluctuations through timely liquidation or delivery.


      In March 2017, the spot price of thermal coal was about 650 yuan/ton.
    With the end of the heating season, the thermal coal market has entered the traditional off-season for demand, and the market expects coal prices to fall.
    A large state-owned coal production enterprise in Shaanxi sold 2,000 lots (equivalent to 200,000 tons of spot) through the 1705 thermal coal futures contract.
    At the beginning of May, the spot price fell to 610 yuan/ton and the futures price fell to 510 yuan/ton.
    The company chose to liquidate its position and realized a futures profit of about 16 million yuan, which was still profitable after making up for the spot loss.
    Through innovative business models, the company not only achieved the expected goal of maintaining value, but also increased sales profits and achieved stable operations.


      Dynamically adjust and use futures to manage inventory.


      Companies have many practical needs for inventory management.
    When the price of inventory fluctuates, companies need to avoid price risks to ensure stable production and operation; during the stable price period, they need to reduce inventory management costs.
    Therefore, the use of the futures market for inventory management has become a useful attempt in the daily inventory management of today's coal and electricity companies.


      In the summer and winter peak seasons, the demand for thermal coal is strong, and the inventory declines rapidly.
    The centralized purchase of power plants will cause the coal price to rise rapidly.
    To this end, relevant ministries and commissions have issued relevant documents requiring power companies to increase their inventory levels and maintain high inventory levels before the peak of coal consumption.
    Problems such as capital pressure, inventory quality concerns, and price risks of power companies are particularly prominent at this time.


      Take Zheneng Group as an example.
    In the first quarter of 2018, the inventory of the power plants of Zheneng Group was rapidly consumed, falling from 4.
    2 million tons to 2.
    63 million tons.
    To this end, Zheneng Group has taken decisive measures.
    By buying thermal coal futures 1805 contract, the final delivery and receipt of 1.
    46 million tons, the average price of opening a warehouse is about 50 yuan/ton lower than the spot price of the same period, which can quickly fill the supply gap and ensure the safety of inventory.
    At the margin, problems such as the shortage of market resources and the large increase in coal prices caused by large-scale centralized procurement of spot materials have been avoided.


      Coal companies use futures tools to flexibly adjust their inventory to protect their business operations while ensuring coal supply.
    During the Spring Festival of 2019, in order to ensure the supply of coal, Yitai Group chose to establish virtual inventory through the thermal coal futures 1901 contract while increasing the intensity of spot transportation.
    As the Spring Festival approached in January of that year, coal mines in the production areas were closed for holidays, the supply of pitheads was tight, and the downstream power plants had difficulty purchasing spot goods.
    In this context, the company chose to deliver the goods in the futures market, and directly supply all the high-calorie, low-sulfur, high-quality thermal coal delivery products with a calorific value of nearly 5,500 kcal and a sulfur content of less than 0.
    5% to downstream power plant customers, not only realizing inventory Rotation, efficient completion of winter supply work, and also helped downstream customers to solve the urgent need of burning "coal".


      The futures blessing business model is more diverse.


      With the deepening of the integration of the coal and electricity industry in recent years, the proportion of long-term cooperation has increased rapidly, and the living space of coal traders has become relatively limited.
    In order to cope with the exposure risk in its operations, Rui Maotong, the largest domestic coal trading company, has actively participated in the futures market since its listing.
    The futures position has been maintained at more than 10,000 lots (equivalent to 1 million tons of spot) for a long time, reaching the peak 30,000 lots (equivalent to 3 million tons of spot), and the cumulative delivery and EFP volume is nearly 1 million tons.


      "Remotop participates in the futures market based on market conditions and its own conditions.
    The actual operation is mainly hedging.
    At the same time, it also carries out arbitrage trading, basis trading and physical delivery (including EFP) to help itself get out of difficulties, stabilize operations, and Realize profits, while also providing cooperative hedging transactions for industrial chain trading partners.
    ” According to the relevant person in charge of Rui Maotong, under the escort of the futures business, Rui Maotong continues to grow bigger and stronger.
    The coal trade volume has increased from 2000 in 2013.
    10,000 tons increased to 80 million tons in 2019.


      It is understood that relying on the coal industry's operating experience and supply chain advantages, the company actively uses thermal coal futures to hedge trade risks caused by fluctuations in spot prices to ensure the rapid and healthy development of the company's domestic and foreign businesses and achieve consecutive years of profitability.
    At the same time, the company uses warehouse receipts or port inventory to complete direct financing through professional risk management companies and banks to provide financial support for the company.


      The person in charge said that through long-term participation in thermal coal futures, Rui Maotong deeply realizes that futures are an effective tool that can effectively serve the real economy and a "stabilizer" for the development of spot enterprises.
    It is helping enterprises to expand their production and operation scale and stabilize their operations.
    And it plays a significant role in smoothing corporate operating profits.


      Talking about the experience of participating in the futures market, the person in charge said that the company should operate the futures business department as an important strategic department.
    When it is necessary to participate in the delivery, the decision-making level must mobilize the arrangements.
    The spot department actively cooperates and actively understands the specific delivery requirements.
    Cooperate with the operation of the futures department.
    Companies must always have a positive attitude towards using the futures market to help their own steady operations.
    On the one hand, they should learn the futures operation mode and on the other hand, they should pay attention to improving the ability to grasp opportunities.



    Transfer from: Futures Daily

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