Price risk management for metals traders
Traders live in the spread. Inventory, forward books and financing create exposure on multiple axes at once: outright price, location, time and quality.
The exposure profile of traders
A trading book carries outright price risk, but the daily reality is spread risk: contango and backwardation shape the cost of carrying inventory, location and quality differentials decide which cargoes win, and financing is tied to the metal on the ground. Deal-by-deal profitability must include financial hedge outcomes and spread results, or performance is a guess.
The temptation in a difficult market is to abandon hedging, which simply substitutes a price risk for a spread risk. What traders need is measurement and visibility: exposures defined in pricing terms, hedges reconciled against physical positions, and systems that make performance accountable deal by deal.
What this means for your price risk programme
- Visibility of transactional and trading performance for management
- Deal-by-deal accountability that includes financial hedge outcomes and spread results
- Decision frameworks for timely, risk-appropriate action
- Systems selection and implementation for exposure measurement
Services that fit this model
Related insight
What is a Spread? Why Metal Manufacturers Should Care.Are you a trader facing metals price volatility? We always welcome the opportunity to talk.
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