SunSirs: Increasing Inventory in Ferroalloy Production Areas to Meet the Diversified Needs of the Industrial Chain

On May 30th, Zhengzhou Commercial Exchange announced the establishment of one ferrosilicon and manganese silicon delivery warehouse in Zhongwei, Ningxia and Qinzhou, Guangxi, respectively. According to the solicitation announcement released in September 2022, the two additional delivery warehouses will start operating on August 20, 2023. It is reported that this news has attracted widespread attention among local industrial customers.

The northwest and southwest regions of China are rich in resources such as green electricity and raw materials, and have unique advantages in developing the ferroalloy industry. According to a reporter from Futures Daily, as ferroalloy futures become increasingly mature, 60% of production enterprises and 90% of trading enterprises in silicon iron and manganese silicon use futures to manage risks. At the same time, the lack of delivery warehouses in advantageous production areas has always been an important concern for local regulatory authorities and industrial customers. On the one hand, setting up designated delivery warehouses in main production areas can greatly facilitate hedging for local industrial customers and effectively reduce delivery costs, Improving delivery efficiency, on the other hand, through the layout of futures delivery warehouses, can promote the improvement of quality and efficiency in advantageous industries.

The market generally believes that setting up designated delivery warehouses for ferrosilicon and manganese silicon in the main production areas can leverage the resource advantages of the ferroalloy main production areas, register and form futures warehouse receipts locally, achieve faster and more convenient sales through warehouse receipts, solve sales problems for enterprises, and improve the efficiency of fund recovery.

Qinghai Fuxin Silicon Industry Co., Ltd. (hereinafter referred to as Qinghai Fuxin) became one of the first batch of designated delivery warehouses for ferrosilicon at Zhengzhou Commercial Exchange on August 1, 2014. In May 2020, the company's "Chengbei" brand ferrosilicon was approved as a futures inspection free brand. As a production-oriented factory warehouse, Qinghai Fuxin fully tap into its own potential and actively carry out futures trading, delivery and other businesses, playing an important role in linking spot trade and futures delivery. General Manager Gan Zhankui believes that by adding delivery warehouses, ferroalloy enterprises in the northwest region can fully utilize the business functions of delivery warehouses, timely grasp market information on futures and spot goods, and expand their business operations; At the same time, we will help processing and trading enterprises grasp the production rhythm and processing costs according to the futures market prices, control market risks and guide the healthy development of the industry.

Qinzhou Port is one of the important distribution ports for importing high-grade manganese ore, and many manganese silicon alloy manufacturers need to pick up goods here. Establishing a designated delivery warehouse for manganese silicon at Qinzhou Port will enable manganese silicon alloy manufacturers from Guangxi, Guangdong, Yunnan, Guizhou, and other manufacturers to form a circular transportation of raw materials and finished products, which is beneficial for manganese silicon alloy manufacturers to reduce costs and increase efficiency. "said Tang Xujian, General Manager of Zhonghui Futures Liuzhou Business Department.

Market participants believe that in recent years, the iron alloy industry with typical high energy consumption characteristics has faced significant uncertainty in the supply end. Setting up delivery warehouses in the main production areas can facilitate more resources to enter the futures market, shorten the registration time of warehouse receipts, help solve the problem of insufficient warehouse receipts, and prevent and resolve potential market risks.

Gan Zhankui believes that when production enterprises face periodic oversupply and inventory backlog, the futures market has become an important sales channel. Selling and hedging through futures can lock in sales profits while completing inventory sales, which is beneficial for enterprises to arrange future production. At the same time, warehouse receipts can be transferred, pledged, and used to offset or offset margin, which can achieve fund return and greatly reduce the financial pressure on production enterprises.

Qiu Tao, General Manager of Yuxin Investment, believes that the main demand of enterprises participating in futures delivery is the phased storage capacity demand, which can be used for hedging or rapid withdrawal of funds to reduce operational risks. When the futures price is more suitable, industrial customers or circulation merchants lock in profits by establishing positions on the futures market, and some positions will be delivered on the market. In addition, when inventory pressure is high, some hedging spot positions can be sold on the market, and these spot positions will also be partially delivered.

In the view of the above individuals, setting up delivery warehouses for ferrosilicon and manganese silicon in the main production areas can meet the diversified needs of industrial enterprises and improve the enthusiasm of participating entities; At the same time, it is beneficial to shorten the registration time of warehouse receipts, expand delivery resources within a certain time window, and promote the smooth operation of the ferroalloy futures market.

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