Commodity Risk Management
Commodity prices are often volatile. Post-Covid, driven by global liquidity abundance, a section of the market expects a commodity supercycle while some others anticipate a crash in prices whenever markets correct.
Whether you have exposure to base metals or crude derivatives or agricultural products, it is important to protect yourself from risk. Companies which have commodity as raw material needs to be protected else the margin can be wiped out with an increase in prices.
Commodity Risk Management Services That We Provide
Commodity hedge set up
To hedge commodity risk, the set for hedging is needed. We do end-to-end set up of commodity risk management and hedging desk. Once the set-up is done, you can hedge your risks inappropriate exchange or in the OTC market
Should you hedge your commodity risk
We evaluate in detail the price movements which impacts your company and the price movements in the market traded instrument. We evaluate basis risk, correlation risk and appropriately advise how to hedge.
Basis risk evaluation is one of the most important criteria for the evaluation of commodity risk hedging. We have the deep Quant ability for that analysis.
Commodity Risk management Policy
We help you prepare a commodity risk management policy. Commodity RMP is a comprehensive document that covers the exposure, objective, hedge rules, allowed instruments, limits, process, MIS formats, and documentation process. The policy is also an RBI requirement if you want to hedge. The policy to be customized for every company with specific requirements.
Commodity Hedge Strategy making
We will make a hedging strategy for you that is geared to protect your risk and meet the objective. Strategy broadly covers the time of hedge, the quantum of the hedge, an instrument of hedge, and cost of the hedge.
Training and Capability building related to commodity hedging
We do conduct commodity hedging and risk management training for our clients and executives. It involves explanation of how hedging helps, how pricing is done, option structures and many more details on commodity hedging.
Using option based commodity hedging
Options help you to mitigate risk while allowing you to benefit from the favorable moves. Often in commodity risk management, options are extremely useful. We provide a calculator, structures, pricing, strategy, and monitoring of option-based hedging. Option structures are also used to reduce the cost of options.
Daily review and recommendations
We review your exposures and hedges every day and evaluate alternative strategies which would be useful. We select the right strategy and recommend the same in a timely manner. During market hours our team will come back to you promptly whenever there is a market movement.
Hedge Execution support
We support in hedge execution as well. We help you strategize for getting the right price and for the smooth execution of hedges. We use calculators, our understanding of bid-offer, and other nuances of the market to extract the right price for you.
Monitoring and Performance Management
We monitor your overall exposure, past deals, settlement details, etc to ensure that policy adheres, and strategy is aligned for achieving the objective. We remain focused on objectives like achieving cost reduction, profitability enhancement, or volatility elimination.
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A lead manufacturer based in Africa has exposure in Lead LME prices both while purchasing raw material as well as while selling the finished products. They were facing challenges when the lead prices fluctuated. They were losing out both when they tried to sell their finished product and also when they purchased raw lead. We understood their business, cycles and set up the commodity hedging structure and policy for them. With the ability to hedge at LME now, they can delink their physical purchase timing and rate-based decisions. For example, if the company envisages price will go up but have inventory, they sell physical inventory and avail hedge products at LME which helps in getting the higher rate at LME. The company has significantly saved so far and is also able to grow business with more confidence. The sheer ability to manage volatility gives the company confidence to do more business.