To Hedge or Not to Hedge: Metals in 2013

Spend Matters Network site MetalMiner recently published a report titled: Translating Price Trends Into Metal Sourcing Strategies for 2013. One of the issues we discuss in the analysis is which metals companies should consider hedging in 2013, based on the volatility and movement of metals in 2012. In the analysis, we proffer up the suggestion of first looking at the most volatile metals – stainless, copper and aluminum.

Precious metals may also make sense for those with substantial buys. Obviously, stainless does not have an exchange-traded or “hedgeable” equivalent, so if the buying organization purchases a grade of stainless that contains nickel, the company could use a financial hedge on nickel to mitigate risk.

Hedging on an exchange is one obvious means of taking risk off the table. But there are other possibilities as well, such as entering into longer-term pricing agreements with suppliers (in exchange for holding a price firm). Granted, we’ve seen cases, particularly in China, where suppliers have failed to honor such agreements—not just in metals but across a range of commodities—but organizations are likely to have more contractual luck in the west.

Regardless of whether you go down the hedging route or not, we strongly recommend reading up on various strategies and technologies to do so – and all of the various elements involved in the process. Besides this report on metals strategies, we recommend checking out our regular sourcing and commodity management research in the Compass section of the Spend Matters research library as well as the following Spend Matters Perspective: Beyond Sourcing and Supply Chain: Commodity Management Solution Fundamentals.

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