Earlier this week, Steel Market Update received an email from a consulting company that is working with a client who is suffering through the high spot steel prices and wanted advice on how to negotiate a contract with their suppliers and basically how to manage the steel price risk.
There are many ways to respond to their request. One would be to tell the client that at $1,370+ spot prices on benchmark hot rolled base, it might be a good time to just sit and ride the spot market down once it begins to move.
However, a second, and perhaps more logical move, is to spend some time, energy and a bit of money to learn how to use the financial markets to manage your company’s price risk, or to allow you the opportunity to assist your customer in managing their price risk (service center to an OEM, for example).
Steel Market Update, in conjunction with CRU (our parent company), the CME Group and Spencer Johnson of StoneX, have created three workshops to assist in the learning and understanding process on how to use financial instruments to hedge price risks.
Steel Hedging 101: Introduction to Managing Price Risk – June 2-3 (virtual)
For those of you who are new to the concept of managing price risk, we offer our Steel Hedging 101: Introduction to Managing Price Risk Workshop. Briefly here are some of the key items that will be presented during this workshop:
- What “hedging” is and why so many companies do it.
- What makes hedging in steel different than other commodities.
- The structure of the market and the mechanics of how trades are executed.
- The costs and risks involved.
There will be presentations by Spencer Johnson of StoneX, the CME Group and a discussion on the HRC index with CRU.
Steel Hedging 201: Advanced Strategies & Execution – May 5 and 6 (virtual)
For companies that understand the basics of managing price risk and the workings of making a trade, we then recommend a continuation of the education process by taking the Steel Hedging 201: Advanced Strategies & Execution Workshop. Here are a few of the items you can expect to discuss during the Steel Hedging 201 Workshop:
- How to develop a strategy based on your company’s risk profile.
- How to use futures and options to advance your marketing efforts without taking on more risk.
- Real-world examples of actual hedging scenarios.
- How to make a more effective linkage between financial and physical steel products.
There will be presentations by Spencer Johnson of StoneX, the CME Group, CRU and real-world examples from those actively involved in the industry.
The next Steel Hedging 201 Workshop will be held on May 5 and 6 (half-day each) and will be done virtually. You can learn more about the agenda, instructors, costs and how to register by clicking here.
Galvanized Steel Hedging Workshop (How to Hedge Products Other than HRC) – April 21 (half-day) virtual workshop
Steel Market Update will conduct a new half-day workshop on April 21 that is intended for buyers who have “basis risk,” as you are not buying strictly hot rolled coil but other flat rolled products such as cold rolled, galvanized and Galvalume. We want buyers and sellers of these products to understand there are specific hedging options. The title of this course is perhaps a bit misleading. We are calling the course Galvanized Steel Hedging Workshop, but it is for anyone interested in managing flat rolled risks for products other than hot rolled.
As with our other managing price risk workshops, Spencer Johnson of StoneX is our instructor, and he will discuss the new HDG index, which is being traded on the CME. But he will also discuss other risks that may exist within your business:
- Geographical risk – i.e. your company is located somewhere other than the Midwest where the HRC and HDG contracts are based.
- Base price risk – the variance between a hot rolled coil base price and that of cold rolled, galvanized and Galvalume.
- Grades and extras risk – such as galvanized coating weight adders.
- Currency risk – what do you do if you are purchasing in a currency other than the U.S. dollar?
- Freight risks
- Energy risks
John PackardRead more from John Packard
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