Business

Managing the risk with fluctuating prices

11/12/2014 - Industry insights

Managing the risk with fluctuating prices

How we manage our risk in this complicated industry is the job of the people in our in-house Treasury. They need to take into consideration, amongst other things, commodity prices, exchange rates and the cyclical nature of supply and demand in the markets.

We are in a high volume low margin business so we need to be mindful of the effect the above factors have on our balance sheet, annual earnings and bank funding. We need to hedge against currency and commodity exposure.

The length of our supply chain means that there is a big lag between when we buy crude oil or refined product and when we finally sell it. We can hold inventory for two to three months before we sell it. How do we manage this? In simple terms we do this by always selling and buying in the same market; and matching the price, timing and volume of sales to purchases for each month.

We hedge our foreign exchange by buying US$ on a daily basis to the same value as the US$ equivalent of the sales we made that day. We then hold those US$ for future crude oil and refined product purchases.

 


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