11thAfrican_Ranjit Soomarooah

8/2/2019 11thAfrican_Ranjit Soomarooah

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OBJECTIVES OF STCOBJECTIVES OF STC

To negotiate the purchase of goodsTo negotiate the purchase of goods

To engage in the manufacture or processing ofTo engage in the manufacture or processing of

goods and to ensure their marketinggoods and to ensure their marketing

To import goods with a view to their marketing,To import goods with a view to their marketing,

distribution or supply by wholesale or retaildistribution or supply by wholesale or retail

To export goodsTo export goods

To engage in such other activities as may beTo engage in such other activities as may be

authorised by the Ministerauthorised by the Minister

State Trading Corporation


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GOVERNANCEOF STCGOVERNANCEOF STCMinistry of Industry, Small & MediumMinistry of Industry, Small & Medium

Enterprises, Commerce and CooperativesEnterprises, Commerce and Cooperatives

BoardBoard

Sub CommitteeSub Committee

ManagementManagement



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General ManagerGeneral Manager

Commercial Finance Risk & Projects IT Administrative HumanCommercial Finance Risk & Projects IT Administrative Human

Division Division Division Division Division ResourceDivision Division Division Division Division ResourceDivisionDivision

MANAGEMENT STRUCTUREOFMANAGEMENT STRUCTUREOFSTCSTC



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ProductsProductsAnnual QtyAnnual Qty

Metric TonsMetric Tons

Ration RiceRation Rice 18,00018,000

FlourFlour 96,00096,000

Petroleum ProductsPetroleum Products 1,032,0001,032,000

Liquefied Petroleum GasLiquefied Petroleum Gas 66,00066,000

CementCement 200,000200,000

PRODUCTS IMPORTEDBY STCPRODUCTS IMPORTEDBY STC



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MARKET ANALYSISMARKET ANALYSIS

Before any decision for hedging is taken,Before any decision for hedging is taken,

a market analysis is carried out.a market analysis is carried out.

Market SituationMarket Situation (hyperlink)(hyperlink)



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FACTORS AFFECTING THEFACTORS AFFECTING THECOMMODITY PRICESCOMMODITY PRICES

Stock LevelsStock Levels

Global DemandGlobal Demand World EconomyWorld Economy

Weather risksWeather risks

Geopolitical FactorsGeopolitical Factors

OPEC reactionOPEC reaction

Lack of refining capacityLack of refining capacity



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WORLD

PRICE

VOLA

TILI

WORLD

PRICE

VOLA

TILI

Evolution

ofDated

Brent

-Jan

2000to

date

10

20

30

40

50

60

70

80

90

4-Jan-00

4-Apr-00

4-Jul-00

4-Oct-00

4-Jan-01

4-Apr-01

4-Jul-01

4-Oct-01

4-Jan-02

4-Apr-02

4-Jul-02

4-Oct-02

4-Jan-03

4-Apr-03

4-Jul-03

4-Oct-03

4-Jan-04

4-Apr-04

4-Jul-04

4-Oct-04

4-Jan-05

4-Apr-05

4-Jul-05

4-Oct-05

4-Jan-06

4-Apr-06

4-Jul-06

4-Oct-06

4 Jan 07

Sta

teTrading

Corp

orat


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IMPACT OF PRICE INCREASESIMPACT OF PRICE INCREASES

AA USD 1/BBLUSD 1/BBLincrease in prices ofincrease in prices of

Petroleum Products costs thePetroleum Products costs the

national economy an amount ofnational economy an amount ofUSD 6m.USD 6m.



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HEDGINGOF PETROLEUMHEDGINGOF PETROLEUM

PRODUCTSPRODUCTS

InIn 20022002, the Government, the Governmentdecided to hedge Price Riskdecided to hedge Price Risk

Exposure.Exposure.



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CREATIONOFRISK DIVISIONCREATIONOFRISK DIVISION

The Board of the STC decided toThe Board of the STC decided tocreate the Risk Division increate the Risk Division in 2003.2003.



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INTERNATIONALSECURITIESINTERNATIONALSECURITIES

ANDDERIVATIVES ASSOCIATIONANDDERIVATIVES ASSOCIATION

(ISDA)(ISDA)Before hedging transactions are done withBefore hedging transactions are done with

foreign Counterparties, ISDA have to beforeign Counterparties, ISDA have to be

signed.signed.

InIn September2003September2003, a U.K. firm of legal, a U.K. firm of legal

advisors were appointed.advisors were appointed.



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COUNTERPARTIESCOUNTERPARTIES

The State Trading Corporation hasThe State Trading Corporation has

signed ISDA with the followingsigned ISDA with the following

Counterparties:Counterparties:-- Citibank NACitibank NA

Barclays Bank PLCBarclays Bank PLC

Morgan StanleyMorgan Stanley Standard Bank PLCStandard Bank PLC

Societe GeneraleSociete Generale

Mitsui Energy Risk Management LTDMitsui Energy Risk Management LTD



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COMMODITY PRICERISKCOMMODITY PRICERISK

Commodity Price FluctuationsCommodity Price Fluctuations affect Cashaffect Cash

Flows and Companies are exposed toFlows and Companies are exposed tovarious risks.various risks.

Hedging Commodity Price Risk forms partHedging Commodity Price Risk forms part

of any comprehensive Financial riskof any comprehensive Financial risk

management process.management process.



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REVENUESREVENUES

COSTSCOSTS

COMMODITY LINKED FINANCINGCOMMODITY LINKED FINANCING

MANAGING CASH FLOWMANAGING CASH FLOW



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No Commodity linked financing from banksNo Commodity linked financing from banks

or Capital Markets is used.or Capital Markets is used.

COMMODITYLINKEDFINANCINGCOMMODITYLINKEDFINANCING



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HEDGING TECHNIQUES USEDHEDGING TECHNIQUES USED

CALL SPREADCALL SPREAD

CALL SPREAD WITH A SELL PUTCALL SPREAD WITH A SELL PUT

(3 wayOptions)(3 wayOptions)

SWAPSSWAPS



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Call Spread with a Sell PutCall Spread with a Sell Put(3WayOption)(3WayOption)A second hedging alternative is to use the same Call SpreadA second hedging alternative is to use the same Call Spread

levels and sell a put at a lower level, saylevels and sell a put at a lower level, sayUSD 60/bbl.USD 60/bbl.

8080 Sell PutSell Put

USD/BBLUSD/BBL 6969 Buy CallBuy Call

6060 Sell PutSell Put



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SWAPSWAPA Swap consists of exchanging a floatingA Swap consists of exchanging a floating

price for a fixed price.price for a fixed price.

USD 69/bblUSD 69/bbl Swap LevelSwap Level



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HEDGINGGAS OILHEDGINGGAS OILNOVEMBER 2006NOVEMBER 2006

Average Gas Oil AG - November 2006

63

65

67

69

71

73

75

77

79

1-Nov-06

3-Nov-06

5-Nov-06

7-Nov-06

9-Nov-06

11-Nov-06

13-Nov-06

15-Nov-06

17-Nov-06

19-Nov-06

21-Nov-06

23-Nov-06

25-Nov-06

27-Nov-06

29-Nov-06

Buy Call USD 71.35 / BBL

Sell Call USD 77.35 / BBL

Sell Put USD 68 / BBL

SWAP USD 71.20 / BBL

AVERAGEUSD 67.80 / BBL



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H

EDGING

GAS

OI

L

H

EDGING

GAS

OI

L

D

ECEMB

ER

2006

D

ECEMB

ER

2006

AverageGasOilAG-December2006

60

65

70

75

80

85

1-Dec-06

2-Dec-06

3-Dec-06

4-Dec-06

5-Dec-06

6-Dec-06

7-Dec-06

8-Dec-06

9-Dec-06

10-Dec-06

11-Dec-06

12-Dec-06

13-Dec-06

14-Dec-06

15-Dec-06

16-Dec-06

17-Dec-06

18-Dec-06

19-Dec-06

20-Dec-06

21-Dec-06

22-Dec-06

23-Dec-06

24-Dec-06

25-Dec-06

BuyCallUSD71.70

/BBL

SellCallUSD81.70/BBL

SellPutUSD68/BB

AVE

RAGE

USD66.90/BBL

SWAP

USD71.20/BBL

Sta

teTrading

Corp

orat


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HEDGINGGAS OILHEDGINGGAS OILJAN,FEB ANDMARCH 07JAN,FEB ANDMARCH 07

Average Gas Oil AG for

Jan, Feb, Mar 2007

55

60

65

70

75

80

85

3-Jan-07

6-Jan-07

9-Jan-07

12-Jan-07

15-Jan-07

18-Jan-07

21-Jan-07

24-Jan-07

27-Jan-07

30-Jan-07

2-Feb-07

5-Feb-07

8-Feb-07

11-Feb-07

14-Feb-07

17-Feb-07

20-Feb-07

23-Feb-07

26-Feb-07

1-Mar-07

4-Mar-07

7-Mar-07

10-Mar-07

13-Mar-07

16-Mar-07

19-Mar-07

22-Mar-07

25-Mar-07

28-Mar-07

Sell Call USD 82.70 / BBL

Buy Call USD 72.70 / BBL

Sell Put USD 65.40 / BBL

AVERAGEUSD 63 / BBL



SWAP USD 71.80 / BBL



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HEDGING PREM.UNLEADEDHEDGING PREM.UNLEADED

NOV & DEC 2006NOV & DEC 2006

Average premium Unleaded 50 ppm -

Nov & Dec 2006

430

445

460

475

490

505

520

535

550

565

580

595

610

625

640

1-

Nov

-0

4-

Nov

-0

7-

Nov

-0

10

-N

ov

-0

13

-N

ov

-0

16

-N

ov

-0

19

-N

ov

-0

22

-N

ov

-0

25

-N

ov

-0

28

-N

ov

-0

1-

Dec

-0

4-

Dec

-0

7-

Dec

-0

10

-D

ec

-0

13

-D

ec

-0

16

-D

ec

-0

19

-D

ec

-0

22

-D

ec

-0

25

-D

ec

-0

28

-D

ec

-0

Buy Call USD 525 / MT

Sell Call USD 625 / MT

Sell Put USD 450 / MT

AVERAGE USD 524.65 / MT



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Average Premium Unleaded 50 PPM

Jan, Feb, Mar 2007

420

438456

474

492

510

528

546

564

582

600

618

636

654

672

690

2-Jan-07

5-Jan-07

8-Jan-07

11-Jan-07

14-Jan-07

17-Jan-07

20-Jan-07

23-Jan-07

26-Jan-07

29-Jan-07

1-Feb-07

4-Feb-07

7-Feb-07

10-Feb-07

13-Feb-07

16-Feb-07

19-Feb-07

22-Feb-07

25-Feb-07

28-Feb-07

3-Mar-07

6-Mar-07

9-Mar-07

12-M

ar-07

15-M

ar-07

18-M

ar-07

21-M

ar-07

24-M

ar-07

27-M

ar-07

30-M

ar-07

USD

/M



Sell Put USD 450 / MTAVERAGE USD 482.59 / MT


AVERAGE USD 613.95

HEDGING PREM.UNLEADEDHEDGING PREM.UNLEADED

JAN,FEB ANDMAR 2007JAN,FEB ANDMAR 2007


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Average LPG BUTANE

Jan, Feb, Mar 2007 (USD/MT)

415

430

445

460475

490

505

520

535

550

565

580

595610

1-Jan-07

4-Jan-07

7-Jan-07

10-Jan-07

13-Jan-07

16-Jan-07

19-Jan-07

22-Jan-07

25-Jan-07

28-Jan-07

31-Jan-07

3-Feb-07

6-Feb-07

9-Feb-07

12-Feb-07

15-Feb-07

18-Feb-07

21-Feb-07

24-Feb-07

27-Feb-07

2-Mar-07

5-Mar-07

8-Mar-07

11-Mar-07

14-Mar-07

17-Mar-07

20-Mar-07

23-Mar-07

26-Mar-07

29-Mar-07



Sell Put USD 440 / MT

AVG USD 545 / MT

AVG USD 526 / MT

AVG USD 506 / MT

HEDGINGLPGHEDGINGLPGJAN,FEB ANDMAR 2007JAN,FEB ANDMAR 2007



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GAINON HEDGING TRANSACTIONSGAINON HEDGING TRANSACTIONS

PeriodPeriod

AmountAmount

USDUSD

Q4 2005Q4 2005 315,000315,000

Q1 2006Q1 2006 192,006192,006

Q2 2006Q2 2006 178,978178,978

Q3 2006Q3 2006 188,600188,600

Q4 2006Q4 2006 88,42188,421



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THANK YOUTHANK YOU


11thAfrican_Ranjit Soomarooah

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