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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
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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
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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
AVERAGEUSD 67.96 / BBL
AVERAGEUSD 70.53 / 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
AVERAGE USD 548.58 / 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 Call USD 605 / MT
Buy Call USD 535 / MT
Sell Put USD 450 / MTAVERAGE USD 482.59 / MT
AVERAGE USD 535.80 / 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 Call USD 600 / MT
Buy Call USD 535 / MT
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
State Trading Corporation