Commodity Price Risk Management

Presented By:

Aurobinda Prasad GayanVice President

Risk- Everywhere exist

Types of Risk

Industrial Metals Performance

Commodity Price as on 31st Aug 2016

Price as on 31st Aug 2017

% Change

Copper 4617 6788 47%

Aluminium 1614 2117 31%

Lead 1904.5 2399 26%

Nickel 9765 11800 21%

Zinc 2310 3146 36%

“With base metals prices rallying sharply in span of one year; as a metal consumers you are now paying anywhere between 20 to 40% higher for the metals than you did same time last year .......

Factors Affecting Prices

Price

Moving

Factors

For

Industrial

Metals

Managing Commodity Price Risk

Concept of Hedging

What is Hedging Any technique designed to reduce or eliminate financial risk; for example, taking two

positions that will offset each other if prices change

Why Hedge

To Protect against commodity price movement

To Safeguard margins

Better Cash Management

To lock in profits

Types of Hedging

Long Hedge - A user who has fixed the selling price of the finished goods in the

physical market

Short Hedge - A user who has not fixed the selling price of the finished goods in the

physical market

Case Study on Aluminium Price Risk Management

Hedge Simulation

Sept 2017 – Auto Inc. and Alu Co. enter into the contract to buy/sell Aluminium in December 2017 at prices prevailing in December

Current market prices of Aluminum is Rs. 130 per kg. Thus both sides are carrying commodity price risk

Risk as on December 2017

If prices rise to Rs. 140 - Auto Inc. pays more

If prices fall to Rs. 120 Alu Co. gets less

Price Risk Management

Auto Inc - Long Hedge

Net Effect -No Profit No Loss

Rs. 140

Rs. 130

Alu Co. - Short Hedge

Rs. 120

Rs. 130

Net Effect – No Profit No Loss

Base Metals Outlook

• Demand optimism from top consumers – China and US

• Weakness in US Dollar

• General uptrend in global equity markets

• Expectation of Supply Deficit across all base metals

• Lower stocks at exchange warehouses – Copper, Lead and

Zinc

• China supply side reforms – Aluminium, Zinc and Lead

Copper Price Outlook

We expect prices to trade in a range of $5950-$7400 in coming months with bias being on the positive side

Aluminium Price Outlook

We maintain bullish view on the metal in medium term and expect prices to inch higher towards $2280/ $2330

Lead Price Outlook

We expect prices to trade in a broad range of $2040 - $2600 with ideal strategy to buy on dips.

Nickel Price Outlook

We expect prices to trade in a range of $10400-$3300 in coming months with bias being on the positive side

Zinc Price Outlook

We maintain bullish view on the metal in medium term and expect prices to inch higher towards $3380/ $3460

• KCSPL is an ICRA A1+ rated commodity broking firm, offering high-end commodity

products and services

• Members of NCDEX and MCX, the two leading national level commodity exchanges

• Pan India presence with HQ in Mumbai ( 43 Branches and 300 Authorized Partners

across India); 14 hour Dealing desk, manned by trained and experienced dealers,

catering to all executionary requirements of the client

• A well appointed research team, comprising of Fundamental and Technical Research

Analysts, covering a broad range of commodities

• For International trades, we are associated with international brokers R.J. O'Brien, INTL

FCStone and ED&F Man Capital

• KCSPL also offers Contract Research under which we offer our research reports to

clients on a stipulated fee

Advantage - KCSPL

KCSPL Research

Thank You