NonFemet ChAI’s first customer in China is a Chinese Metal producer with an annual operating income of over 40 billion yuan and 10,000 employees, who undertake cross-industry and cross-region operations that span mining, processing, smelting, manufacturing, R&D, construction, real estate development, trade, warehousing, and financial services. They are using ChAI forecasts across multiple divisions, accessing market intelligence for many commodities.
Challenge
Mr Qian highlights ‘The biggest challenges for us in predicting commodity prices are derived from the fact that there are many complex factors affecting the commodity industry. The factors to be considered include domestic and international factors, at macro and micro levels. Nonfemet is an established company within domestic mining and smelting of lead, zinc, and other non-ferrous metals. We have a relatively high ability to analyse and understand the domestic dynamics and policies affecting our industry, and even some of the macro policies. However, it is relatively difficult for us to understand the foreign industry, including macro policies, the investment climate, and changes within the industry and at specific foreign companies. We also experience time delays obtaining relevant information, due to lack of contacts or access to the right information. So, one of our biggest challenges is lack of access to information about international factors affecting pricing, and our ability to analyse and grasp that information once we obtain access, in a timely manner.’
If the price of zinc fluctuates violently, how much of an impact will that have on your company?
‘Our main company activity is mining and smelting non-ferrous metals. Our smelting and mining capacity is almost equal, with our mining capacity being slightly higher than our smelting capacity, for example, our main products are lead and zinc, and zinc accounts for the majority. The impact of zinc price fluctuations on our corporate profits is around 30%-50% or even more, which has a huge impact on our overall profitability. Our aim is to ensure profits through hedging and futures trading. Our profit strategy focuses on a specific period, whether it be annual, quarterly, or yearly. We’re also trying to reduce the overall cost of hedging.‘
Solution
‘ChAI has become an important research tool and source of overseas analysis, which we use to inform our hedging strategy and learn more about overseas market trends. It’s also easy for our traders to be influenced by the violent price fluctuations in the market and for us to see this reflected in our traders’ judgement. ChAI use of artificial intelligence, can improve the stability of our trading and prevent personal bias from affecting our judgement.’
Is it fair to say that ChAI enables your analysts to access overseas information quicker, compared to traditional analysis reports and research reports?
‘Yes, that’s fair to say. We used to subscribe to a variety of research reports provided by various investment institutions and these reports are usually published periodically, potentially with long intervals between reports. In addition, the market factors the company observes may change. ChAI enables us to track specific factors and combinations over time, which improves stability.’
What is your favourite ChAI feature?
The key driver feature. ‘I like seeing the different factors that affect commodity prices in each period - weekly, monthly, quarterly, or semi-annual. I like the way the graphics explain what’s driving prices in a positive way and what’s driving prices in a negative way. The satellite data provides useful information related to warehouse factories, mines, and transportation. Transportation capacity has become a significant factor influencing price trends.’
Result
Three divisions within Nonfemet are benefitting from using ChAI:
- Trading team, who are responsible for hedging and spot market strategies
- Overseas mines
- Division managers, who oversee production and market trade hedging
Conclusion
‘I would highly recommend it. We need cutting-edge technology to assist us in risk hedging. From my own experience, ChAI offers unique price prediction insights and is improving the effectiveness of our hedging strategy.
Nonfemet have an impressive research and development team. Any company that is impacted by commodity prices, whether they have their own research team or not, will benefit from using ChAI’s price prediction tool.‘
About ChAI
ChAI uses state of the art AI models to forecast commodity prices. Applying artificial intelligence to all the data that matters such as alternative data (e.g. satellite imagery above mines and the movement of seaborne freight) and more established data (e.g. inventories and currency movements). Providing full explainability on how these prices are derived and what the key drivers are, they are able to give procurement, finance and risk managers a more holistic picture of what’s impacting the raw material prices they have exposure to. This allows them to capture more margin and optimise their procurement and hedging processes.
