Hangxiao Steel Structure lost $6M on futures — expected procurement hedge failed

Hangxiao Steel Structure (stock code 600477.SH) is a Shanghai-listed Chinese steel structure engineering company, one of the largest in the industry. Its subsidiary WanJun LvJian operates a green building materials e-commerce platform.

In April 2022, the board approved a futures hedging programme with a maximum capital limit of 50 million yuan. The subsidiary began trading raw material futures — steel rebar, hot-rolled coils, and iron ore — to hedge against rising input costs. The strategy was 'expected procurement hedging', meaning the company was hedging against anticipated future purchases rather than existing physical inventory or firm purchase orders.

Between April and August 2022, raw material prices fell sharply amid China's property market slowdown and COVID lockdowns. The long futures positions lost money. By 24 August, cumulative losses reached 41.66 million yuan ($6 million), equivalent to 10.12% of 2021 audited net profit. The company had also secretly used 30 million yuan from a 'temporary risk reserve' to add margin — a violation of its own disclosed fund limits.

The Shanghai Stock Exchange sent a regulatory work letter on 29 August 2022. The board publicly apologised and implemented new controls: adding professional risk management staff, setting a hard stop-loss trigger (any single position losing 50% of its capital must be escalated to the board), and revising the hedging policy to require matching positions against actual procurement orders. The case became a textbook example of 'expected transaction hedging' — a strategy that looks like risk management but is indistinguishable from speculation when the expected purchases never materialise.