Commodity Proxy Hedging
The first step towards offsetting price risk in commodities and components.
To establish whether, and how well, the commodity risk on your balance sheet can be covered, we offer a fast and inexpensive way to measure that risk from the price data you supply. It shows whether the approach applies to your materials at all, and what a countermeasure we calculate would have produced over the period your data covers.
Even where no derivative exists for your material, we use published prices of traded derivatives to build a mirror of your price risk, from combinations that change over time.
From €3,500 for plastics, steel, paper and wood. You receive our verified calculation within 72 hours of your complete data arriving.
Request the analysis
Everything below is company-level information. Your price data comes later, in the Excel files we send you.
Before you submit: this payment is not refundable. If the analysis finds that proxy hedging is not possible for your material, or does not reach the coverage we aim for, that is the answer you have paid for. You receive it and the evidence behind it, and the fee stands.
How your request runs
1. Complete the form with your basic details. Company information, the name of the material we should examine, whether you carry purchase or sale risk, and how often you have price data (daily, weekly, monthly). We do not quote for price data less frequent than monthly.
2. You receive your tables straight away. The spreadsheet reflects what you entered and gives you a structure for recording your data, so that we can calculate from it.
3. You enter the price history you want us to analyse. How long that takes is entirely up to you. What matters is that you follow the structure we set out, so that we can work with the data. You then upload the file using the link we send with the table. What you need: prices per material with date, volume, unit of measure and price per unit.
4. We deliver the analysis within 72 hours of your complete data arriving.
What the analysis shows
Three questions, answered from your own numbers rather than from a general model.
How high is your commodity risk? We measure it against your own price history and calculate how your economic risk develops: the risk index that has to be offset.
Is a countermeasure possible? Risks can be modelled and covered, but your material or component may not be representable if the data is too imprecise or too infrequent. We need at least monthly price data going back at least ten years. The further back the data goes and the more granular it is, the more likely a countermeasure becomes and the better it works.
How well can your economic risk be covered? How efficient would the protection have been? We calculate that for the period from 2020, provided your series starts no later than 2014; six training years are needed for the calculation to be reliable. The goal is to reduce the price fluctuation risk by 80 to 90 percent, provided your data is suitable and our calculation can deliver it.
These results describe how the approach behaved against prices that have already been paid. They are a record, not a forecast.
Your data stays with us. It is not passed on, and if you do not place an order within three months it is deleted. If you decide on implementation later, the fee for recalculating applies again.
What you receive
An analysis document based on your data, one per material requested. It contains four results.
1. Your risk index, quantified. We calculate the weighted average price of the material and determine your specific economic risk from it, expressed as a risk index.
2. The mirror of that risk. Alongside it we show how weighted baskets develop: baskets assembled over the observation period from tradable instruments, in combinations that change, to mirror that risk index.
3. A year-by-year comparison. Depending on the data series you send us, you receive a comparison of risk index and proxy index for each year from the start of 2020.
4. The results in table form. You also receive a calculation showing how the possible offsetting solution developed in relation to the risk index.
Which version you receive depends on the objective you set for that material. Hedging tracks your price risk closely, protecting the balance sheet and accepting the cash flow swings that come with that. Optimization protects the balance sheet in adverse phases and does not necessarily leave you worse off on cash flow when prices move in your favour. The record and the result look different depending on which you choose.
What it costs
Each material is analysed and invoiced separately, and you request a data table for each. A request covering two materials means two analyses, invoiced and paid separately.
€3,500
per material
Plastics, steel, paper, wood
€4,900
per material
Any other material
For plastics, steel, paper and wood we have already built code for other customers and can reuse it; their data of course remains confidential. That allows fast processing and checking, so delivery can be quicker than 72 hours. For any other material we have to develop our own code.
Payment is due when you submit the request and is not refundable. The feasibility analysis is the work, not the promise of a positive result. If the result is that the approach does not fit your material, you receive that answer and the evidence behind it. So far we have found a solution for every task we have been given. We may still meet one that cannot be solved.
After a positive feasibility
Implementation is a separate step and a separate decision, and it means putting a contract in place.
In outline: you make sure we receive not only your historical price data but also new prices on an ongoing basis, which we need to keep your risk index current and to produce the proxy solutions.
What we owe is a calculation, not the buying or selling of commodity contracts.
An asset manager or bank selects the specific contracts and submits the selection to you and to us for review. They then instruct a broker to execute the required purchases and sales according to the percentage allocation we calculate, naming the specific contracts and the number of contracts to be executed on the exchange. You have the chance to review the selection before anything is executed. You have access to the trading account, the margin account and the real-time view of your portfolio covering your economic risk.
The roles involved, who can see your purchase data, and what happens if you disagree with a selection are all covered in our FAQ.
