Financial and commodity risk managment

You already know the value of properly managing foreign exchange and interest rate risks, but what about your commodity risks? The recent rollercoaster ride of commodity prices and the increased level of volatilities affecting markets are upping the pressure on you to address commodity risks head on.

Your challenges

To what extent are you exposed to commodity price risk? While trying to answer this, you may struggle to:

• identify, assess and measure commodity exposure and the potential impact of volatility in commodity prices on EBITDA
• formulate commodity risk management objectives and define the most appropriate hedging strategy in line with your business model and risk appetite
• find the tools and systems to effectively manage your risk
• measure the performance and added value of your risk management programme
• reflect your economic objectives in your accounting results (to achieve hedge accounting on commodity hedges)

How we can help you

With our wide industry expertise, we aim to help you:

• get a clear look at your company, contracts and business practices to understand, gather and consolidate areas of exposure
• model the results of alternative hedging strategies and share your industry expertise
• select and implement a system of commodity and energy trading risk management
• put in place an optimal hedge accounting framework
• benchmark your risk management organisation and processes with peer companies

Commodity exposure: an example

What does commodity exposure look like? The example below illustrates the key commodity exposures and price volatility faced by a light bulb manufacturing company.

If your commodity pricing looks like this, we can help you take the next step by mapping your commodity exposures based on their relative weight in your cost structure and on the volatility of specific commodities. This way, we identify all potential threats that these commodities can represent to your company's operational margins.