Commodity Hedging with QTC

Identifying opportunities to save and mitigate risk with commodities in procurement

As global supply chains and markets continue to evolve, prices for the materials of manufactured goods continue to show signs of high volatility. Raw materials and commodity prices play a significant role in the final cost of goods and are often not a fixed value. QTC has implemented a streamlined way to manage the risk from market fluctuations for certain commodities after identifying growing exposures within client procurement contracts.

As a result, QTC has launched client capability to utilise cash-settled commodity swaps and commodity options.

Cash-settled commodity swaps enable clients to pay a fixed value while receiving a variable (floating) value linked to the commodity market price. The cash-settled difference can then be used to offset procurement  contract fluctuations linked to a higher  commodity price.

Commodity options on the other hand provides a client the right, but not the obligation, to purchase a commodity for a fixed price at a future date for an upfront premium. Options create flexibility to lock in prices that may be contingent on project approvals, enabling the buyer to choose between exercising the option if it has intrinsic value or allowing it to lapse if the exposure does not materialise. Options also permit the buyer to protect a worst-case price whilst still being able to benefit from favourable market movements.