Yongmaotai lost $6M on aluminum futures — the SSE said it was speculation, not hedging

Yongmaotai (stock code 605208.SH) is a Shanghai-listed auto parts manufacturer that produces aluminum alloy products for the automotive industry. The company went public on the Shanghai Stock Exchange in March 2021.

In April 2021, the company's board authorised management to conduct futures hedging, with an initial trading limit of 80 million yuan, later raised to 100 million yuan. Yongmaotai and its subsidiaries bought long positions in aluminum, copper, and nickel futures — call options that would profit from rising metal prices. The company claimed these were hedging trades to protect against raw material price increases.

When metal prices fell sharply in H1 2022 — copper down 14%, aluminum down 7%, nickel down 30% from its peak — the long positions were wrong-footed. From January to June 2022, the company's futures accounts accumulated losses of 40.4 million yuan ($6 million), with an estimated impact on annual profit of -31.3 million yuan. The loss was equivalent to roughly 50 days of net profit. The Shanghai Stock Exchange sent a regulatory work letter, and the Shanghai Securities Regulatory Bureau issued a warning letter to chairman Xu Hong for failing to disclose the losses in a timely manner.

Market analysts pointed out that the trades were not genuine hedging: Yongmaotai was trading nickel futures even though it had no nickel exposure, and the size of the futures positions did not match its physical metal requirements. The company stopped transferring new funds into futures trading and implemented new risk control measures restricting trading to varieties directly related to its core business. Yongmaotai's stock fell 7.3% on the day the regulatory letter was disclosed.