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Advisory client cases

Our advisory approach

To support you in your commodities business, our advisory services are based on extensive analysis of all sectors. From energy to industrial and precious metals, as well as the bank's far reaching macro and geo-political research. This means that we can provide you with an in-depth understanding and fact-based outlook for your market.

Client cases for the commodities business

Diesel

  • Case example: Diesel hedging

A client that had for a long time relied on a time diversified approach to purchasing diesel required for their transportation related business approached SEB to discuss alternative risk management strategies.

By adding a long-term diesel hedging program, to be managed by their Treasury, SEB was able to show that historically the price risk in their diesel purchases would have decreased by almost 30% by maintaining a rolling 2 year hedging program and by more than 45% utilising a 4 year rolling hedge.

Steel

  • Case example: Structured steel using scrap

Although globally immense in scope and size, steel markets are not homogenic as they include a variety of grades and indices which determine the price characteristics of each sourcing contract. A client asked SEB to help them understand the risk inherent in their purchases of structured steel and look into the possibility of hedging their future purchases in order to reduce the overall risk in their production process.

Based on our analysis we were able to show our client that hedging using scrap, the most liquid of the various steel grades and indices, while lowering volatility on average also came with an increased idiosyncratic risk as the correlation between steel grades was not stable in all price regimes.

Natural gas

  • Case example: Natural gas as a feedstock to an end product

Over the past few years, customers working within the fertilizer industry have been looking into gaining a better understanding of the relationship between their main feedstock (natural gas) and their various end products. ​

The main aim of one of these discussion was the viability of using natural gas as a proxy hedge of the price risk of their end product.​

SEB’s was able to show that despite being the single largest input in almost all of the client’s end products, the price characteristics of natural gas was significantly different from that client’s end products and that using natural gas as a proxy hedge would actually increase the price volatility of their underlying products i.e. despite being highly profitable in 2021 the hedge over time would be more akin to a speculative position than a proper hedge.​

Aluminium

  • Case example:Aluminium hedging

A client had for a long time relied on fixed price contracts with its suppliers – a practice which has historically been common across many commodities. However, as with many other commodities, pricing conventions have been changing with suppliers preferring to offer clients either variable pricing or short term fixed price contracts. This change has led to a significant increase in the price risk associated with their sourcing processes. 

Based on contract pricing information provided by the client SEB was able to prove that by using 2 year aluminium swaps the client was able to decrease average price volatility of their aluminium purchases by almost 25%.

Contact us

For more information, please contact us through this e-mail adress:

commodities@seb.se