Service Type: Physical Commodity Risk Management
Project: Commodity Hedging Strategy
Context:
Input commodity volatility was disrupting our client’s production earnings and demands from multi-national buyers for fixed-price ethylene and polyethylene product.
Approach & Results:
Approach: A survey of available financial hedge products as well as fixed-price forwards available from mid-stream providers, embedding risk management structures in physical contracts. Following that exercise, we assisted negotiation of agreements with multiple physical ethane and natural gas suppliers and financial institutions to effect financial hedging strategies.
Results: The team devised a hedging strategy by working with senior management for targeted cracker spreads and hedge instruments, including fixed price physical buying of inputs and sales of ethylene. Financial swaps and futures enabled the client to lock in desired fixed prices.
