In early March this year, the Lun nickel incident broke out, and cobalt giant Huayou Cobalt issued a clarification announcement about media reports, and the company's information on nickel hedging business was made public for the first time. Previously, Huayou Cobalt had never publicly disclosed the relevant situation of carrying out nickel hedging business.
On April 23, Huayou Cobalt successively released its 2021 annual report, the announcement on the implementation of the 2022 annual hedging business, and the securities investment and derivatives trading management system. With the release of the relevant announcement, more details of Huayou Cobalt's nickel hedging business are displayed in front of the public.
The reporter combed and found that this year, Huayou Cobalt will carry out the hedging business of nickel, cobalt, copper, lithium and commodity trade, and the total margin of the two businesses is 8.5 billion yuan. In 2021, after the consolidation of Huayou Cobalt's nickel futures hedging business period, the invalid hedging loss exceeded 50 million yuan. Chen Yaozhong, deputy general manager of Huayou Cobalt, is a futures "veteran" who once worked in the futures department of Liaoning Huaxi Group.
It is worth noting that on March 22, 2022, Huayou Cobalt issued an announcement that the company reached a strategic cooperation intention with Volkswagen (China) and Tsingshan Holding Group to jointly lay out the development of nickel and cobalt resources in Indonesia, and Tsingshan Holding Group is one of the protagonists of the Lun Nickel incident.
It is planned to carry out the hedging business of raw materials and commodities trade, with a total amount of 8.5 billion yuan
According to the 2021 annual report, during the reporting period, Huayou Cobalt achieved operating income of 35.317 billion yuan, an increase of 66.69% year-on-year; and achieved a net profit attributable to the mother of 3.898 billion yuan, an increase of 234.59% year-on-year, creating the best annual operating performance in the company's history. Huayou Cobalt said that during the reporting period, the company carefully organized and lean manufacturing, optimized resource allocation, improved product quality, reduced production costs, improved guarantee capabilities, realized the safe and stable production of long-term production lines, and maintained a high production level.
According to the announcement on the implementation of the hedging business in 2022, Huayou Cobalt held the 32nd meeting of the fifth board of directors on April 21, 2022, deliberated and passed the "Proposal on the Company and Its Subsidiaries to Carry Out Hedging Business in 2022", and agreed that the Company and its subsidiaries should carry out the hedging business of nickel, cobalt, copper, lithium and commodity trading of raw materials required for production and operation.
Regarding the purpose and necessity of hedging, Huayou Cobalt said that the market price of nickel, cobalt, copper, lithium and other commodities required for the company's production and operation fluctuated greatly, in order to avoid and transfer the price fluctuation risk of the spot market and maintain the company's business performance continued and stable, the company decided to make full use of the hedging function of the financial market to carry out hedging business for the company's raw materials nickel, cobalt, copper, lithium and commodity trade required for production and operation, and reduce the impact and risk of price fluctuations on the company's production and operation. In turn, the company's production and operation level and anti-risk ability are improved.
According to the announcement, the types of hedging transactions of Huayou Cobalt include the hedging business of nickel, cobalt, copper and lithium, the raw materials required for production and operation, and the hedging business of bulk commodity trade. The hedging scale of raw materials required for the company's production and operation should match the spot output and financial strength of the current year. According to the company's raw material demand, the company and its holding subsidiaries to carry out the raw material hedging business required for production and operation occupies a total of no more than 8 billion yuan or the equivalent foreign currency, and is recycled during the effective period. The total amount of margin occupied by the Company and its holding subsidiaries to carry out commodity trade hedging business shall not exceed RMB500 million or the equivalent in foreign currency, which shall be recycled during the effective period. Hedging instruments include financial derivatives trading instruments such as futures, options and forwards. The source of funds is the company's own funds and holding subsidiaries, as well as commercial banks, investment banks and other financial institutions derivatives transaction credit. The authorized business period shall be from the date of consideration and approval of this proposal by the Company's General Meeting of Shareholders to the date of the Company's 2022 Annual General Meeting of Shareholders. The above-mentioned hedging matters need to be submitted to the company's general meeting of shareholders for consideration.
It was not publicly disclosed before the hedging business was carried out
The "Securities Investment and Derivatives Trading Management System" clearly states that the futures varieties of the company engaged in hedging business should be limited to products or raw materials related to the company's production and trade, and not directly or indirectly engage in derivatives transactions for speculative purposes. Where a company engages in derivatives trading, in principle, it shall control the matching of spot spot and derivatives in terms of type, scale and time, and formulate a practical emergency response plan to respond to major emergencies that may occur in the course of trading in a timely manner. A company engaged in derivatives trading shall submit it to the board of directors for consideration and promptly perform its information disclosure obligations, and the independent directors shall issue special opinions. If the amount of derivatives investment accounts for more than 50% of the company's latest audited net assets and the absolute amount exceeds 50 million yuan, it shall be submitted to the shareholders' general meeting for deliberation after deliberation and approval by the board of directors.
Huayou Cobalt said that this system has taken effect from the date of deliberation and approval by the company's board of directors, and the same is true when it is revised. After this system takes effect, the original "Hedging Management System of Zhejiang Huayou Cobalt Co., Ltd." is abolished.
The above information shows that Huayou Cobalt has previously formulated a hedging management system, but it has not been publicly released.
In fact, Huayou Cobalt's hedging business is well known to the market and began with a clarification announcement about media reports issued by the company after the Lun Nickel incident in early March this year. At that time, Huayou Cobalt said in the announcement that nickel is the main raw material in the company's production and operation. The company laid out the nickel and cobalt resource development business in Indonesia, in order to stabilize the operation and prevent risks, in the case of nickel prices continuing to rise, in order to prevent and control the risk of price decline, lock in operating profits, the company combined with its own production and operation conditions, in strict accordance with the company's hedging management system to carry out nickel hedging business. Hedging business is a commonly used risk prevention tool in production and operation, not active speculation. Recently, the nickel futures market has experienced super abnormal fluctuations, and as of now, the company has not been forced to liquidate its positions, and the risk is controllable. There is uncertainty about the future trend of nickel futures, and there is a risk that the company's hedging business may lose money.
In 2021, the invalid hedging loss exceeded 50 million yuan, and the company's executives were futures "veterans"
In the annual report, Huayou Cobalt disclosed the relevant situation of the hedging business in 2021. Huayou Cobalt said that the company held nickel-containing metal inventory during the reporting period, and in order to avoid the risk of nickel metal price changes on the price change of nickel-containing metal held, it used the Shanghai Futures Exchange nickel futures contract or LME nickel futures contract for hedging. The company uses the hedge accounting method for processing. Due to the rise in nickel futures prices, the company sold nickel futures contracts suffered losses, as of the end of the period, the company's nickel futures contracts formed a fair value change loss of 104821710.25 yuan, the current nickel futures contract formed a total loss of 145408856.97 yuan, nickel-containing metal inventory due to the hedging risk of the formation of 94763288.25 yuan, is an invalid hedging loss of 50645568.72 yuan.
It is worth noting that Chen Yaozhong, deputy general manager of Huayou Cobalt, is a futures "veteran". According to the annual report, Chen Yaozhong has worked in the futures department of Liaoning Huaxi Group and the securities department of Tianjin Blue Sky Hi-Tech Co., Ltd., and once served as the assistant general manager and deputy general manager of Tianjin Bamo Technology Co., Ltd. He joined Huayou Cobalt in June 2013 and is currently the deputy general manager of Huayou Cobalt, and concurrently serves as the chairman of Tianjin Bamo, the chairman of Huayou Pohang, the chairman of Puhua Company, the chairman of Huajin Company, and the chairman of Leyou Company.
This article originated from Futures Daily
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