Презентация - Corporate Commodity Risk Management

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Corporate



CommodityRiskManagement

Jeff Wallace

Jeff



Wallace

ManagingPartner

GreenwichTreasuryAdvisors

www greenwichtreasury com

©2008 GreenwichTreasuryAdvisorsLLC

www

greenwichtreasury

com

TopicsCovered

• Growingimportanceofcommodityhedging

•

Modern corporate risk management

Modern



corporate



risk



management

• Hedgingcommodityriskvs.FXrisk

•

Common commodity hedging mistakes

•

Common



commodity



hedging



mistakes

• Understandingyournetcommodityrisk

•

Managing your net commodity risk

•

Managing



your



net



commodity



risk

• Accountingforyournetcommodityhedging

Ab GihT Ad i

•

out

reenw



reasury

sors

©2008 GreenwichTreasuryAdvisorsLLC ‐1‐

GrowingImportanceofCommodityHedging

• NearlyallworldwidecommoditiesarepricedinUSD

•

The long

‐

term trend for the USD is bearish

The



long

term



trend



for



the



USD



bearish

–%ofcentralbankreservesdeclining

–Americancauseswell‐knowntotheworld

–Last5yearsofEUR/GBP/RMB/etc.appreciation

–Othereconomiesaregettingbetter,reallybetter

• Lawofoneprice

–Ifsupplyanddemanddoesnotchange,adecliningdollar

means higher USD commodity prices

means



higher



USD



commodity



prices

–Oilpricesineurotermshavebeenmorestable

©2008 GreenwichTreasuryAdvisorsLLC ‐2‐

ModernCorporateManagementPhilosophy

• Afirmmaximizesprofitbytakingrisksonly inareasin

whichithasuniqueexpertiseandexperience;e.g.:

 IBM:computertechnologyandrelatedservices

 Microsoft:softwaretechnology

 Wal‐Mart:retaildistribution

• Anon‐financialfirm minimizesrisksinareasinwhichit

hasnouniquecompetitiveadvantage:

– Foreignexchangerisk

–Interestraterisk

–Commodityrisk

©2008 GreenwichTreasuryAdvisorsLLC ‐3‐

ModernCorporateRiskManagement—1

Activeriskmanagementcreatesshareholdervalue

throughbetterstockpriceperformanceby:

S bili i i d di id d

•

bili

ngearn

ngsan



• Communicatingclearexpectationsandriskprofileto

the stock market

the



stock



market

• LowerdiscountrateandrelatedWACC

©2008 GreenwichTreasuryAdvisorsLLC ‐4‐

ModernCorporateRiskManagement—2

Corporate Risks

Business Risk:

-Sales

-Marketing

- Manufacturing

Market Risk:

- Foreign exchange

- Interest rate

Commodity

Credit Risk:

- Commercial

- Counterparty

Sovereign

Operational Risk:

-Systems

- Controls

Regulatory

Liquidity Risk:

- Funding risk

-LT vs. ST

Credit lines

- Competition

- Reputation

Commodity

-Equity

-Inflation

Sovereign

- Settlement

Regulatory

-Fraud

- Weather

- Natural disasters

Credit lines

- Contingent capital

Paid to Take Paid to MitigatePaid to Manage

©2008 GreenwichTreasuryAdvisorsLLC ‐5‐

ModernCorporateRiskManagement—3

Moderncorporateriskmanagementis:

•

The effective hedging of

business

‐

generated

financial

The



effective



hedging



business

generated

financial



exposuresand(ancillary)commodityexposures

–

Measures of effectiveness include those outlined in

Measures



effectiveness



include



those



outlined



FAS133

–Pra

matic



erformance‐basedstandards

g,p

–Nothedgingsignificantrisksisspeculative

•

By definition hedges must mitigate risk



definition

,

hedges



must



mitigate



risk

–“Hedges”thatincreaseriskarespeculative

©2008 GreenwichTreasuryAdvisorsLLC ‐6‐

ModernCorporateRiskManagement—4

Amodernriskmanagementprogramissustainedoveraperiodof

timewiththeseobjectives:

• Raisingtheawarenesslevelofkeyrisksinthebusiness(risk

exposurereporting)

Ptiliti ti iifi tik t t d

•

roac

ym

iti

ngs

ifi

can

r

ssoasno



oexcee



seniormanagement’sdefinedworstcase(risktolerancelevel)

• Incor

oratin

riskmana

ementintoca

italallocation

pg g p

decisions(risk‐adjustedreturns)

• Strongcontrolsandmeaningfulreportingtosenior

t ()

managemen



(

governance

)

TopicsCovered

• Growingimportanceofcommodityhedging

•

Modern corporate risk management

Modern



corporate



risk



management

• Hedgingcommodityriskvs.FXrisk

•

Common commodity hedging mistakes

•

Common



commodity



hedging



mistakes

• Understandingyourcommodityrisk

•

Managing your commodity risk

•

Managing



your



commodity



risk

• Accountingforyourcommodityhedging

Ab GihT Ad i

•

out

reenw



reasury

sors

Commodityvs.FXRisk—1

• CommoditiesareoftenmorevolatilethanFX

–

More difficult to short (always can borrow



difficult



short



(always



can



borrow



currencies)

–

Supply can be volatile due to long lead times in

Supply



can



volatile



due



long



lead



times



minescomingon‐streamorweather(draught,

Katrina)

• Counterpartyriskislarger

–Nearl

allcommoditiesaretradedonanexchan

e

y g

whichmanagesthisrisk

–FXisalmostentirelyanOTCmarketbetweenbanks