Price risk management for metals processors
Smelters, refiners and semi-fabricators live on the margin between the raw material they buy and the refined or fabricated product they sell. That margin is a spread, and it moves on both legs at once.
The exposure profile of processors
Every processor, whether upstream or down, is a manufacturing added-value enterprise wrapped around a commodity trading business. Raw material (concentrate, scrap, anode or cathode) is bought on one pricing basis and date; refined or semi-fabricated output is sold on another. Treatment and refining charges, payability terms, premiums and timing mismatches all sit between the two legs.
Because purchase and sale rarely match in volume, timing or basis, processors carry manufacturer risk and trading risk at the same time, and lumping their results together hides which side is winning. The fix starts with structure: separate the distinct risks, so each can be explained, measured and acted on.
What this means for your price risk programme
- Structure that separates the manufacturing book from the trading book
- Coordination of commercial and risk functions around the same market reality
- Measurement that links commercial pricing with offsetting hedges on a combined net basis
- Reporting that exposes inefficiencies and their sources, not just a net number
Services that fit this model
Related insight
Metal Price Risk Problems? Think Structure.Are you a processor facing metals price volatility? We always welcome the opportunity to talk.
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