The volatility of commodity prices can have a material impact on an organisation due to the direct impact it has on input and/or output prices. It can also have an indirect impact when linked to other market exposures, such as currency exposure, and the relationships between inter-related exposures can be complex.
The challenge of effectively managing commodity price risk can often be exacerbated by specific issues such as:
Liquidity shortages and/or the lack of available hedging instruments
High levels of price volatility
Basis risk
Risk mitigation strategies, which can include anything from supplier / customer risk sharing arrangements to futures and OTC hedging, must therefore account for the often distinctive characteristics of the specific commodity markets involved.
Practical Market Experience
The Validus Commodity Risk advisory team has risk management experience in a number of markets including energy, metals/mining, forest products, and textiles. We specialise in the design and implementation of customised risk management programmes, which address specific commercial and market risk characteristics and ensure that commodity hedging is fully aligned with business objectives.
“The Validus team understand how private equity thinks about financial risk management issues and they are rigorous in the way they help our portfolio companies to understand and mitigate their risks.”
James Markham, Partner – Portfolio Management, Graphite Capital LLP
Testimonial
FX and Commodity Risk
“Validus provides us with independent strategic advice relating to our long-term currency and commodity risk management program. The people are extremely capable and collaborate very well with our finance and operations teams here at JD Irving.”
Mark Bettle, Director, J.D. Irving Ltd.
Testimonial
FX Risk
“Validus developed a tailored hedging solution to mitigate the risks from our unique combination of existing supplier agreements. The implementation and management of this rolling hedging programme with our FX service providers has been expertly and efficiently handled”.
Mark Goldby, Finance Director, SMS Electronics Ltd.
Testimonial
Commodity Risk
“Validus worked with us to develop a comprehensive commodity risk management programme – their analysis was both insightful and actionable. We particularly value their independence, and they continue to work alongside our internal team to ensure our commodity price risks are managed effectively”
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