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I. Description
Customer-driven commodity risk management business means the customer-driven fund business in which ICBC conduct transaction with the customer in the mode of inquiry through financial instruments (such as commodity forward, swap and option) and transaction elements of commodities (such as precious metals, energy, base metals, mineral products, agricultural products and soft commodities) should be specified.
Gold leasing is a business in which ICBC leases gold to corporate customers in compliance with regulations, and charges fees according to the contract, and the leasee returns equal amount of gold upon maturity. As the gold leasing fee is lower than the same-period current fund loan interest rate, the customer can reduce financing cost through leasing gold from ICBC.
Customer-driven commodity risk management business in conjunction with gold leasing means to avert forward rise risk of gold prices, the customer conducts forward gold transaction at ICBC while applying for gold leasing.
II. Target Customers
The product is applicable to corporate customers (including gold producers and processors) with certain understanding of the international gold market and the demand for gold leasing and managing gold price risk.
III. Features and Advantages
1. The forward gold business helps gold leasees to lock forward gold purchase cost and avert rise risk of forward gold prices.
2. Cash difference delivery doesn’t involve physical delivery. At maturity, both parties conduct difference delivery according to agreed fixed price and gold price on the pricing day, without physical delivery.
3. It is a relatively high-standardization off-exchange trading product. At an early stage, both parties don’t need to pay fees. The trading structure can be customized.
IV. Business Case
Jewelry Processing Enterprise D signed the gold leasing contract with ICBC on June 30, 2017, whereby it leased 1,000 kg gold (32,151 ounce) from ICBC at the market price of USD1,250/ounce and returned 1,000 kg gold to ICBC on September 30, 2017. The customer hoped to avert gold price rise risk during lease term.
The customer signed the forward gold contract with ICBC, whereby it purchased gold from ICBC at the forward price of USD1,300/ounce. The forward would expire on September 30, 2017. Assuming that, the price rose to USD1,350/ounce at maturity. In the spot market, the customer returned gold at the purchase cost of USD1,350/ounce. In the forward contract, ICBC paid the customer 1,350-1,300=USD50/ounce. The customer’s overall gold return cost: 1,350-50=USD1,300/ounce. It successfully averted the price rise risk during the lease term.
V. Qualification
In addition to ICBC’s gold leading conditions, the customer shall also meet the following conditions to apply for customer-driven commodity risk management business:
1. It has opened a basic or general deposit account at ICBC.
2. It has no bad credit records at banks or major bad records.
3. Its credit rating is above A (inclusive).
4. Special credit limit has been approval for derivative transaction.
If the customer has provided security deposit in full or other low-risk guarantee, it is not subject to Items 3 and 4.
VI. Application Process
1. Signing of a master agreement: The customer applying for customer-driven commodity risk management business must sign the Customer-driven Risk Management Business Agreement of ICBC with ICBC.
2. Customer assessment: The customer needs to receive comprehensive assessment in terms of its operation nature, experience in financial derivative transaction and internal management & control and fill out the Customer Assessment Form.
3. Application submission and risk confirmation: The customer my submit applications one by one based on business requirements, and sign the Financial Derivative Business Confirmation of ICBC for Corporate Customers with ICBC one by one.
4. Implementation of guarantee measures: The customer may pay security deposit, hand over collateral or may occupy special credit limit of derivative transaction. During transaction duration, ICBC will conduct dynamic management of security deposit based on market capitalization of derivative transaction.
5. Transaction conclusion: ICBC will submit a transaction confirmation to the customer.
6. Delivery upon maturity: At maturity, ICBC will conduct fund clearing and accounting for the customer.
VII. Risk Prompt
As affected by political and economic factors at home and abroad and accidents, the international gold market price may undergo drastic fluctuations. After transaction conclusion, the risks and losses arising therefrom shall all be assumed by the customer, and ICBC won’t bear any responsibility.
Note: The information provided on this page is for reference only. Concrete business shall be subject to the announcements and provisions of the local outlet.
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