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Commodity price exposures shouldn't be affecting your bottom line.
Through custom financial hedging strategies, AEGIS can help mitigate these risks.

Common Hedgeable Exposures

Metals

Fuels

Natural Gas

Power

NGLs

Ags

Interest Rates

Foreign Exchange
 
 
 
Metals End Users

Is reducing commodity price exposure a top concern of yours?

By implementing a commodity hedging program, you can mitigate price risk and protect your bottom line from the impacts of market volatility.

Table of Contents

 

 

What is Hedging?

A hedging transaction is a strategic action that companies use to reduce the risk of losing money through the fluctuations of commodities and/or rates. 

  • Create cash flow certainty
  • Establish a known cost structure
  • Maintain or enhance your company’s competitiveness within the industry

Hedging is like insurance wherein it is utilized to minimize the chance that assets will lose value, while limiting the loss to a known and specific amount if there is a loss.

 

Speculation vs. Hedging

Speculation involves the practice of trying to profit from price changes in various markets. “Risk Takers”

Hedging involves the practice of mitigating or minimizing the probability of loss from changes in price. “Risk Averse”

A hedger starts with price exposure, buys or sells a futures contract, and offsets the price exposure.

For example, a steel mill is offered a fixed price in a forward month and buys futures in the same month to offset the price risk. A hedger always does the EQUAL AND OPPOSITE of their physical exposure.

A speculator - running a scrap yard or a mill. When they have price exposure beyond their normal course of business and do NOT hedge.

 

 

Types of Hedging

Financial hedging involves strategic actions used by a company to reduce the risk of losing money through the fluctuations of commodities and/or rates. While physical hedging, often known as 'back-to-back' pricing, is the pricing of bought or sold physical material to match the pricing of future production and sales.

Physical Hedging

  • Company is subject to single supplier credit risk​
  • Suppliers are “laying off” risk after fixed price negotiations – resulting in opaque pricing and increased hedge execution fees​
  • Company is subject to take or pay agreements that require specified volumes and time periods​
  • Hedges may need to be product, size, and supplier-specific

Financial Hedging

  • Company can distribute credit risk across multiple financial counterparties (banks)​
  • Hedges are negotiated and executed in regulated derivatives markets – resulting in clear execution tied to exchange pricing and reduced-price slippage​
  • Company owns assets that offer the flexibility to unwind if circumstances change materially​
  • Hedges are portable and easily adaptable across multiple products, sizes,  and suppliers

 

 


Why Hedge?

Given the volatile nature of commodity price fluctuations, companies involved in the production of finished products regularly face price risks on input costs and other manufacturing and distribution risks. While inefficient fixed-price supplier contracts have been used to “hedge” some of these risks, manufacturers are increasingly turning to more flexible financial hedges to manage their exposures.

AEGIS offers unmatched technology and advisory expertise for commodity and rate hedging that can help you implement the right strategy to protect your cash flow and stabilize margins. 

 

  
   

Why AEGIS?

  

 
Aegis Unique Insight  

Unique
Insight

The scale of our platform, a team dedicated to studying global commodity and rate markets, and an unmatched client base allow us to offer a unique perspective.

 
   
Aegis Best Execution  

Best
Execution

We tailor recommendations to specific budgets, underwriting, lender covenants, and investor objectives – and partner with over 40 counterparties to arrive at fair value.

 
   
Aegis Best Execution  

Unmatched Technology

We leverage technology to distribute information, improve execution, assess scenarios, and deliver actionable insights through web and mobile apps. And, our investment is ongoing.
   
Aegis Unique Insight  

Complete
Focus

It would be easy to pursue compromising activities and fee structures. We are 100% focused on capital and cash flow protection through fixed-fee contracts. No conflicts. Ever.

 

  


Industry-Specific Case Studies

Learn more about how AEGIS has helped customers implement successful hedging strategies.

Metals | Aluminum | Rolling Mill

Newly-Formed Company Faces Build vs. Buy Decision for Hedge Program

By leveraging the technology and expertise from AEGIS, this newly-formed company was able to focus attention, capital, and efforts on establishing critical business operations, knowing they were properly protected against commodity market volatility.

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Metals | Aluminum | Beverage Producer

Beverage Company Reduces Aluminum Price Risk by Implementing Hedge Strategy

A fast-growth beverage company was facing significant commodity price risk procuring aluminum cans from multiple international suppliers. As with most aluminum purchasing, their default contract pricing was based on floating market prices.

Read More →

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