Hedging of bitumen works...

1. ALBR3CHT Supply Concepts GmbH
Creating added Value…

2. Corporate Hedging: Bitumen
– An Introduction –

3. CONTENTS
BACKGROUND
REVIEWING FACTS AND FIGURES
HEDGING BITUMEN
MODUS OPERANDI
SERVICES
IMPLEMENTATION

4. BACKGROUND

5. Background
 Foreign exchange and commodity bitumen
markets are affected by high volatility and
therefore subject to substantial risk of price
changes, that will additionally be driven by
speculation and influenced by political action.
 Increasing natural demand and diminishing
resources will in the long run lead to rising
commodity prices
 Significant data is required in order to build up
an effective risk management to minimize the
exposure to foreign exchange and raw material
price changes.
 A professional risk management allows long-
term budgeting of price targets and profits and
offers the chance to generate savings in volatile
markets.

6. REVIEWING FACTS AND FIGURES

7. Reviewing Facts and Figures.
 What risk positions (bitumen contracts, foreign
currency, other commodities) does the company
hold?
 What is the size of the positions and over what
time periods are risks prevailing?
 How do variations of these risk components
effect cash-flow, turnover and material usage?
 What is the size of realized/unrealized
profits/losses?
 What is the remaining risk potential and the
probability to sustain losses respectively?

8. HEDGING BITUMEN

9. Hedging Bitumen.
 Bitumen cannot be hedged directly but indirectly
through making use of correlating tradable products,
such as Heavy Fuel Oil (HFO 3.5% Sulphur) and / or
Gas Oil
 HFO by itself performs already with a Correlation
Coefficient of >0.8
 However most of international bitumen contracts are
HFO related and subsequently give a 100%
correlation to the underlying hedge
 Hedging contracts are available from an underlying of
1,000 tonnes per year onwards
 It is possible to hedge bitumen contracts up to 60 (in
words: sixty) months into the future

10. MODUS OPERANDI

11. Modus Operandi.
Risk Analysis Administration Hedging Strategy Result
Identification of the
underlying Arrangement of Decision: Save calculation of
trading account with Swap, Option, Collar purchase / sales prices
Analysis of correlations Global Risk Mgt. in DK
Monitoring Secured
Determination of the Specification of of Markets budget and
base quantity hedging tools margins
Starting, holding and
Analysis of supply chain Fixation of the liquidating positions
and foreign currency risk parameters No additional cost
exposure Reporting
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12. Different market situations and individual purchase and
sales contracts require different hedging strategies and instruments.
High volatility obstructs the calculation of
long-term procurement. Without hedging the
company is defenceless against the
volatility of the market
Falling prices. What to
do, if only hedged
against rising prices ?
Dynamic hedging!
Prices are increasing
steadily. How to handle
that? Static hedge! Solutions:
Dynamic Hedge
Static Hedge
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13. Static versus Dynamic Hedge
 A strategy using standard  The derivatives strategy can be
Explanation
derivatives is predefined, e.g. flexibly adjusted to the actual
Static
buying a call option, a future Dynamic
market situation, e. g. by
contract or forward swap. starting, holding and liquidating
positions at any time.
+ Low complexity and dynamic + Optimal return on the hedge
setting up the hedge, easy to (return vs. cost) in fluctuation
Pros and Cons
handle market conditions
+ Low cost of fees, fixed for the
– Fixed return on the hedge (return whole term when entering the
vs. cost) agreement
– High complexity and dynamic
– No windfall profits setting up the hedging strategy
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14. RANGE OF SERVICES
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15. Range of Services: a tailore made Concept
 Administrative implementation of accounting
 Monitoring of trading signals
 Position management
 Active supervision and adjustment of hedging
volume
 Monitoring and risk management of hedging
volume
 Daily calculation of total risk position
 Reporting
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16. IMPLEMENTATION
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17. Implementation: Hedging
 Application for an account at
Global Risk Management, Middelfart, Denmark
 Agreement of Credit Line
 Alternatively payment of an initial Margin
 Monthly adjustment
 According to Market Value
 Changes of positions if needed at market value
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18. Join the Partnership.
 Facilitation: Global Risk Management A/S,
Middelfart, Denmark
www.global-riskmanagement.com
 Expertise
 & Concept: ALBR3CHT Supply Concepts GmbH
Düsseldorf, Germany
www.supply-concepts.com
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