The second anniversary of the listing of urea futures, the cumulative delivery of nearly 240,000 tons

In January 2020, urea futures opened for the first delivery. As of July 2021, a total of 15 deliveries were completed, with a total of 239,000 tons of urea delivered. Overall, the physical delivery of urea futures is smooth, and the participation of factories and warehouses has increased significantly. In special periods such as the new crown pneumonia epidemic caused traffic and transportation to be blocked and spot prices fluctuated sharply, urea futures delivery played an important role in ensuring spot supply, effectively alleviating the shortage of fertilizer in some areas, and playing a role in escorting agricultural production.

Frequent hot events, urea futures give full play to the role of stabilizing price fluctuations

In the past two years, the urea industry has been affected by emergencies such as the outbreak of the new crown epidemic, repeated changes in Indian tenders, and tight raw materials, and the stability of the industry's supply and demand has been threatened. Thanks to the existence of urea futures, industry chain companies can flexibly adjust purchase and sales channels, adjust production and operation activities in advance according to market expectations, stabilize purchase and sales prices, and avoid market risks. In this regard, Zhengzhou Commodity Exchange stated that the reason why urea futures can stabilize spot price fluctuations is mainly due to the following reasons:

First of all, urea futures provide a new supply and marketing channel for the industry, effectively alleviating price fluctuations caused by the mismatch of short-term supply and demand. When the new crown pneumonia epidemic broke out, it coincided with the domestic spring plowing season, transportation was restricted, upstream companies continued to accumulate inventory, downstream supplies were tight, and the contradiction between supply and demand was obvious. Urea futures provide companies with new channels for purchase and sales, and ease the contradiction between supply and demand in special periods. For example, Yuntu Holdings, a downstream compound fertilizer manufacturer, faced the problem of difficulty in purchasing urea during the epidemic, and successively bought contract hedging in the futures market and held it until the delivery month, successfully delivering and receiving 34,000 tons of urea. The futures market not only guarantees the rigid payment of urea sources, but also avoids the risk of spot price hikes caused by large-scale purchases of urea in special periods by large enterprises and the intensified contradiction between supply and demand.

Secondly, urea futures prices provide expectations for spot prices and guide the industry to flexibly adjust production and operations. At the end of July 2020, India, my country's largest exporter of urea, suddenly released information about large-scale bidding, which is good for my country's urea export, and my country's urea demand has a gap. After the news was released, it was immediately reflected in the futures price of the day, and the September contract price of urea futures rose. Mainland production companies that have not paid attention to export information saw the expectation of price increases from the futures disk, and immediately increased the operating rate. The national daily output of urea rose by 7%, and the supply-demand relationship returned to normal within two weeks. Under the guidance of futures prices, spot companies flexibly adjusted output, shortened the adjustment time of the contradiction between supply and demand in the spot market, and stabilized the increase in spot prices. Compared with the domestic price fluctuations during Indian bidding in the same period of previous years, this year's market price recovery time was shorter and the overall fluctuations were more stable.

Finally, financial institutions help industrial enterprises to cooperate in hedging and inject capital support for the industry. Risk management companies and other financial institutions cooperate with industrial enterprises to carry out cooperative hedging business, jointly assume risks and share benefits. In early 2021, in order to avoid operating risks caused by price fluctuations, the risk management company Jingcheng Industry will undertake futures hedging funds for Zhejiang Agricultural Materials, and Zhejiang Agricultural Materials will provide spot guarantees for Jingcheng Industry. Both parties have complementary advantages and cooperate in hedging to avoid the market. Risk, to achieve the integration of industry and finance.

Put food security in the first place and prevent and resolve various hidden risks in futures operations

Urea is not only an important agricultural material, but also an important industrial product, and its position in the national economy is very important. The price of urea is affected by many factors such as the supply and demand structure, raw material prices, fertilizer season, international market, relevant national policies and environmental protection, and fluctuates frequently. Unconsciously, urea futures have been running for two years. Yan Sensheng, a urea researcher at Guantong Futures, believes that in two years, the impact of urea futures on the spot market is still very obvious:

1. Winter storage of urea has a greater price risk in previous years. After the futures are listed, companies use urea futures to carry out hedging business, which reduces the price risk during the annual winter storage of urea. Futures have increased the willingness of urea companies to short-stay and guarantee supply in spring.

2. Changes in the price of urea have a greater impact on the production costs of downstream enterprises. Downstream companies can use urea futures to buy hedging. Before the peak season arrives, they can establish virtual inventory on the disk to lock in profits. This year's UR2107 contract has a discounted spot, which has created convenience for buying hedging.

3. The listing of urea futures introduces new tools to the trade model of the industry. As companies in the urea industry chain have increased their understanding of futures tools, companies have become more involved in futures. The industry is developing from traditional trade to basis trade and rights-containing trade.

4. Urea futures provide a fair and open reference benchmark for the industry, create convenience for industry trade, and protect the interests of farmers.

In addition, Yan Sensheng expressed his expectation for the future prospects of urea futures. He said: “First of all, the price of urea is currently at a historical high, and the downward trend in future prices will put pressure on companies to participate in off-season reserves. Therefore, use urea futures to do Hedging is of great significance to the future supply of chemical fertilizers. In addition, the total annual urea exports to India account for a small amount of domestic annual output, but the printed label has a greater impact on the urea price. At present, ZCE urea futures are global transactions The most active fertilizer futures, the urea industry chain companies' extensive participation in urea futures is of great significance to firmly grasp the urea pricing power. Companies need to use futures tools correctly to protect the interests of the domestic urea industry."

As a leading enterprise in the domestic agricultural materials industry and a national fertilizer commercial reserve enterprise, Sinofert has carried out hedging operations based on the corresponding urea spot purchases to avoid operating risks caused by the drop in spot prices. According to Liu Yongxin, product manager of the Nitrogen Fertilizer Department of Sinofert, the company chose to sell and open a position on the urea contract based on the actual situation of the futures market, and set a stop loss line. The areas that carry out hedging include Shandong, Henan, Xinjiang, Jiangsu and other areas that undertake short-term reserves. The company used the hedging business to better avoid price downside risks brought by long-term contracts, and successfully completed the task of storing spring fertilizers, contributing high-quality supply to the spring market in the coming year, and restraining the price of urea to a certain extent. The rapid rise will escort the country's food security.

In addition, Liu Yongxin also mentioned that Sinofert's compound fertilizer company has a demand for urea purchase, which is used as a compound fertilizer raw material. If the price of the urea futures contract is lower than the spot price, and the main contract is close to delivery, it can be used as a purchase hedging and waiting for delivery as a raw material for the factory, reducing procurement costs and ensuring the production and supply of compound fertilizer. According to the actual situation of the futures market, the company chose to buy and open a position in the urea futures contract and set a stop loss line. After entering the delivery month, physical delivery will be carried out, thereby reducing the overall procurement cost of raw materials for the compound fertilizer plant. The company uses the hedging business to better resist the adverse impact of the rising market on the procurement of raw materials for compound fertilizer companies, reduces the cost of raw materials procurement, and creates favorable conditions for the stable supply and production of the company’s compound fertilizer raw materials. Supply of compound fertilizer in autumn.

In the face of increasing market risks, industrial enterprises have a strong demand for hedging risks, and the futures market needs to provide means and tools for discovering prices and avoiding risks for their production and operations. The relevant person in charge of the ZCE said that the next step will continue to pay close attention to the urea period and the operation of the spot market, promptly warn and respond to signs and tendencies, and prevent and resolve various potential risks. ZCE expects to use urea futures as a starting point to better serve the transformation and upgrading of the industry and the implementation of the rural revitalization strategy, and maintain national food security.