Managing Price Risk In Commodity Trading For Steel

Learn How To Use Hedging To Manage Risk

This white paper sets out the basic principles of using hedging instruments to mitigate exposure for commodity price movements. We have created some simple examples using the LME Steel Billet Futures contract to illustrate:

  • How hedging works
  • How AspectCTRM supports price risk management and hedging

These are just theoretical examples we have created, although the price data is real and correct as at 1st August 2011. Though this paper uses the Steel Billet contract, the principle applies to almost any commodity for example iron ore, coal, precious or base metals, and the hedging instrument may be either exchange traded such as from the LME or CME, or an Over the Counter (OTC) instrument such as a swap. Many companies are now issuing such OTC instruments, priced from various sources such as indices or average prices from differing market data sources. Contact Aspect Enterprise Solutions to discuss how this applies to your business and how this approach can provide a stable and predictable business cash flow and revenue /P&L forecast.

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