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Anonymous
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Asked: 2019-11-26T00:24:58+00:00 In: ,

What is steel hedging, and how does it help steel companies?

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What is steel hedging, and how does it help steel companies?

Hedging is a financial instrument which is used to manage risk and minimise losses on investments. With low risks, profits also need to come down.

How can the steel industry (steel traders, steel producer, steel consumers etc.) benefit from hedging?

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    1. Mehmet
      Level 1

      Steel hedging is a strategy designed to minimise exposure to unwanted market risk.

      Hedging allows a buyer/seller with price risk to transfer that risk to a person who wishes to take on that risk. The risk-taker may be a hedger who wants to take an opposite position, or, a speculator wants to take risks for profits.

       

      Hedging for steel producers:

      • Insure against the risk to revenues from declining steel prices
      • Protect the value of steel inventories
      • Provide long term fixed price contracts without risk

       

      Hedging for a service centre, rolling mills and steel traders:

      • Risk against the risk of price rises for steel raw materials
      • Risk against the risk to revenues from declining prices
      • Protect the value of steel inventories
      • Provide long term fixed steel price contracts without risk

       

      Hedging for steel consumers or end-users:

      • Insure against the risk of steel price rises for components in manufacturing
      • Insure against the risk to revenues from declining steel prices
      • Protect the value of steel inventories
      • Provide long term fixed steel price contracts without risk
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