Uncover Your Risk:
Large Price Swings
Recent years have brought incredible volatility to the copper market. As unanticipated events like the US/China Trade War, COVID-19, Supply Chain Disruptions, and the War in Ukraine, many business operations have struggled to manage the uncertainty of the future. Through CIH’s educational and process driven approach to price risk management, your company can be better prepared for what comes next.
Raw Material Availability
Pressured global supply chains can wreak havoc on businesses at all levels. As the world began reopening after lockdowns, overcoming production backlogs and detangling the logistical mess was a very tall task. We still see ripple effects today. Many companies responded by increasing order volume and quantity out of fear for the next opportunity to receive product. Carrying that inventory increases a company’s exposure to price risk and macro factors around the world. CIH’s dynamic technology allows companies to stress test their position for capital requirements, create what-if scenarios to evaluate implications of various market moves, and ultimately feel more comfortable carrying large inventories in order to produce reliably for their customers.
Larger Forward Sales Book
As world economies recovered from pandemic demand destruction, business began to boom. Instead of selling a couple months out and buying the copper when the sale was made, sales began pushing several months/years out. This increased a company’s price risk that if copper rose substantially by the time they could make the product, margins on the sale would be pressured. For prices fixed at time of sale, CIH works with clients to identify when they will need to buy the copper to fill that order. Each week, companies work with their consultant to manage those positions in order to achieve their margin goals.
Managing Value of Inventory
Not all inventory is created equal. Having a detailed accounting of all inventories on hand, as well as a comprehensive time-based records of forward sales, will allow a company to match inventory to sales more accurately and efficiently. Through CIH’s Daily Position Report, these details can be easily uploaded to a client’s custom website. Once the data is collected, our customers can analyze their net price risk based on work in process and raw material inventories. That net price risk can be viewed through time alongside the sales schedule, giving clients additional flexibility in managing their risk.
Customers Asking for Pricing
Even if a company doesn’t normally offer a fixed price at the time of sale, due to the price volatility over the past year, some clients are asking for a fixed price or at least a cap on price. In those cases, CIH works with customers to identify strikes and prices of call options that would offer a cap on price to customers. The company could either embed this cost in the markup or add it as an extra fee that the customer could choose to take or leave. For example, with copper now approaching $4.00/pound again, some clients are considering buying something like a $4.10 call to put a cap on price yet leave the down side open. In July, a $4.10 call would cost about 24 cents. You could charge the $0.25 to offer a cap at $4.10 copper or mark up the price a bit an offer them a $4.40 max and potentially pass the savings on the copper if the price dropped.
