Success Stories
Clients Find Success with Metals Price Management
CIH works with companies across the metals industry. Depending on your unique situation, you may have questions about how or if hedging is the right fit for you. Below are a few examples of questions CIH has helped clients solve. If these sound familiar, CIH can help you find a solution as well. Click on the question below to learn more about some of the unique solutions CIH provided to clients.
Can I protect the value of my inventory?
With the market falling over the last few months, steel prices are close to 3-year lows. Using the CIH website, one client saw how the price compared to history and thought it was a good opportunity to start building inventory at the lower prices. However, they aren’t quite sure when the turn they hope to see will happen. Without hedging, they wouldn’t be able to step into the decision like they have. CIH’s website helps them measure the physical risk they have and allows them to offset any risk they aren’t comfortable with and fine tuning their exposure to match their appetite. They’ve been managing the positions and plan to remove hedges as they become more bullish. The information on the website helps them figure out when the time is right, some of it is public data, other things are specific to their operation.
CIH has a few clients that price off quarterly averages or month-over-month formulas, sometimes multiple depending on source or customer. With the volatile steel market, there are often extreme discrepancies in price between months. CIH’s website shows information to help clients identify opportunities to “re-weight” how much one month impacts their average price for the quarter, as an example. CIH helped them create measured guidelines on quantities and entry/exit goals to appropriately manage risks if markets remain abnormal.
Can I hedge products that aren’t simple commodities?
CIH has a client that was struggling to hedge the different forms of metal they processed. The CIH website allowed them to measure the relationship of the shapes’ prices with HRC prices. Once they had that, they were able to see their physical risk across all of their products in HRC terms. That clarity and visibility allowed them to upload their inventory each week and manage the net risk they were exposed to. Seeing how the website simplifies the risks of multiple products and displays it in an easily digestible format is something a lot of prospects really like.
Once I place a hedge, am I married to that price?
A client has been bearish the last few months. He was offsetting his inventory by selling futures against new purchases each week. Recently, he was indicating that the market would likely turn around before the end of the year, but was unsure when. During his weekly consulting calls, the client started converting futures to options to protect gains in the positions as he became less bearish. The website and CIH’s guidance helped him identify the right floor for his operation and bias. When the market started to creep up, he was disappointed that his options were decreasing in value. On the website, he was able to see that by exiting the futures, he was able to take $100/ton in profit (~$800-~$700). Because he was still bearish, we placed a floor on his inventory for about $30/ton. While the floor was worth less than $30 after the up move, he protected $70/ton of profit by managing the position. Additionally, that inventory is worth more today than it was the week prior.
What if I can’t afford to lose money hedging?
CIH had a client come to us a few weeks ago with a request for help because he had to report a hedge loss in copper to his board. The market rallied over $1/lb this spring and the board was concerned about the loss. CIH was able to provide him with information showing that the net result of the hedges was more than offset by the increase in inventory value, which accounting methods prevented them from reporting. In fact, the specific strategy was employed to participate in such a rally. The strategy was executed with confidence because of the ability to accurately measure and identify how much physical risk the client had each week and whether they were long or short (this client can fluctuate between the two). Before executing the position, what-if analysis was completed in the client’s website to discuss potential outcomes. Having tools and a process to portray risk accurately is routinely discussed and shared with clients.
How can hedging help me with bidding jobs?
CIH has a client that is in the contracting business. The way their operations work, when bidding jobs, they must assume a material price in their quote which will dictate whether they win the job or not. Many of their competitors will inflate the material estimate in case the price of the commodity goes up. Using CIH’s regression manager, clients can have a more precise assumption of commodity risk based on the various formats of metal required in the job specs. This alone allows them to more accurately estimate the equivalent pounds or tons of exchange metal needed. Additionally, with those regression statistics, the client can offer different pricing options on the material element of their bid including a maximum price to the customer. This has allowed them to produce more competitive bids and win market share in the industry.
Can I hedge if I don’t own the material?
A recycling client was frustrated with the reactive nature of their hedging program. When breaking down their material volumes by source, CIH found a way to help them be more proactive with their more consistent supply. For recyclers with industrial or manufacturing accounts, clients use history and regression tools to project volumes all the way up to a few months out. Given the volatility in the market, weekly consulting calls with the client allow them to manage these positions proactively with the intention of reducing risk and protecting equity in their hedges when applicable.
How do I know how many hedges I need and where?
One client of CIH’s carries inventory, has forward purchase contracts in place, and makes forward sales. All of these can change rapidly within a day. Using the CIH website, the client can view their current physical position netted against their hedges. The visibility of their net position combined with the ability to stress test outcomes based on market variables gives them complete control of the risk exposure that is right for them. Removing any doubt that their hedges align with both the quantities and time periods of their physical risk. This includes an accurate measure of the exposure they have on many non-exchange traded materials like scrap, coated products, and finished goods.
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There is a risk of loss in futures and option trading. Past performance is not indicative of future results.