Commodity price risk managementCommodity price risk management

Businesses that rely on the purchase of commodities for their product or service can suffer from unexpected costs if commodity prices become volatile. Commodities are priced in world markets and prices fluctuate constantly. Changes in prices are difficult to predict but it is possible to hedge unwanted price fluctuations with derivatives. The management of commodity price risks should be methodical, continuous work that results in operational stability. Danske Markets specialists are at your service for risk assessment and for tailoring the best risk management solution for your needs.

ProductsProducts

Commodity price risks

Energy

Oil, gas, diesel, fuel oils


The price of crude oil fluctuates heavily with supply and demand. Crude oil is the world’s most actively traded commodity. The market for oil derivatives is well established and it is possible to hedge various crude oil qualities as well as lubricant oils.


Metals

Nickel, aluminium, copper, zinc, tin


The prices for precious and industrial metals fluctuate strongly according to supply and demand. Prices for industrial metals often predict turning points in business cycles and induce marked changes in company profit margins. Metal prices affect profit margins as both inputs and outputs. Price risk can be hedged for both.


Forest

Pulp, recycled fibre


Forest industry is a cyclical and capital intensive industry. Cyclicality exposes the industry to substantial fluctuations in profits. Return on capital is determined by the supply and demand situation when selling the output. Price risk may be hedged by fixing the price of input (pulp) with an appropriate derivative.


Power

Electricity

Both the producer and the user of electricity incur the risk of electricity price movements. It is possible to hedge the price risk with derivative contracts. The contract fixes the price of electricity at an agreed level.
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