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By developing specialist commodity price risk management capabilities, companies can manage price risks proactively.
In today’s market environment, exposure to commodity prices can either put a company at risk or provide a sustainable competitive advantage. For many businesses, from food companies to airlines and from car manufacturers to construction companies, commodity price movements are the single most volatile drivers of profit.
We believe companies that have developed a more sophisticated approach to commodity management are able to control risk and determine capital requirements better.
Read the report to find how a commodity price risk management approach can help companies determine the optimal trade-offs between risk and return.
A commodity price risk management approach has three major benefits:
Reduces cost of managing risk through hedging and can broaden the range of suppliers to facilitate settling for best-value deals.
Reduces margin volatility, and thus, it can drive a significant uplift in equity valuation.
Offers an opportunity to lock in advantaged prices to reduce cost of goods sold, rather than being tied to the spot price at the time of delivery or to the prices provided by suppliers.
Based on our experience in helping companies develop commodity price risk management capabilities, we suggest:
Start a pilot program for a single business or commodity as this helps validate the business case, demonstrate success and promote the gradual education of the organization. This step could include a 6 to 12 week diagnostic engagement, comparing commodity price risk management against leading practices, and identifying both quick wins and medium-term opportunities.
Combine the pilot program with a long-term road map. Define the value commodity price risk management should be adding in a year and in three years. This means that when wins from the program start to accumulate, the business can be well-placed to maintain momentum.
To discuss how a commodity price risk management capability could benefit your business, please get in touch with us.
Key contacts from Accenture’s Trading, Investments and Optimization Strategy practice:
Ogan Kose has more than 15 years’ experience in helping commodity players manage their earnings and risk management. His primary focus areas include commodity trading, risk management, investment evaluation and financial analysis, pricing and commodity contract structuring.
Miguel Gonzalez-Torreira has more than 10 years’ experience in working with commodity players. His primary focus areas include commercial optimization, helping clients define their operating models in order to bring strategic and operational synergies across production, supply, trading, pricing and marketing of commodity products.
Jamie Gardiner has commercial optimization experience across a range of hard and soft commodity industries, including coal, downstream fuel, liquefied natural gas, airlines, and beverages and ingredients. His functional experience includes commodity trading, pricing, forecasting, risk management and integrated planning.
James Smyth focuses on commodities markets fundamentals analysis, commodity trading strategy and commercial optimization. He has worked with multiple mining majors and juniors, national oil companies and oil majors.
April 24, 2014
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