Beverage Manufacturer Reduces Aluminum Price Risk by Implementing Hedge Strategy

Markets: Metals   |  Commodity: Aluminum   |  Customer: Beverage Producer

 

 

Situation

A fast-growing beverage producer had a long-standing practice of locking in physical prices with its aluminum can suppliers. This form of “physical hedging” left the company subject to supplier credit risk and with an inability to verify if quoted prices were accurate or current. Furthermore, given that the physical hedges were specific to certain can sizes and volumes, they were not portable as demand changed. As a result, the company was often overpaying for the aluminum component of its can contracts.

 beverage producer had a long-standing practice of locking in physical prices with its aluminum can suppliers

Solution

The beverage company engaged AEGIS to identify and quantify its aluminum price exposure within the procurement process.

AEGIS assisted the company in establishing an internal risk group to monitor and document its commodity exposures.With the infrastructure in place, the AEGIS team worked with the company to implement and execute a hedging program using financial hedges to offset aluminum price risk.

Hedges were executed with well-capitalized banks and the company had full transparency to current market conditions - ensuring the prices were fair and efficient. A “stop-loss” strategy enabled the company to benefit as aluminum prices declined and strategically limited its exposure to further price increases as the market marched higher.

Had the market subsequently declined, the company would have remained hedged, but not realized the full benefit of lower prices.

Outcome

The elements for success are now in place: an internal risk team, a strategy to recognize and adjust to market movements, and a partner to execute hedges efficiently. The company is better positioned to manage aluminum market fluctuations.

The beverage company is now able to budget more effectively, forecast margins, and improve its competitive positioning - all while utilizing financial hedges that can easily be replaced and adjusted as demand changes.

"We were referred to AEGIS by a trusted supplier. We needed better visibility into our aluminum exposure and more flexibility into controlling our aluminum costs. Working with AEGIS has allowed us to quickly benefit from hedging without the burden of hiring internal experts.”

Leadership Team   |   Beverage Producer

 

 
This case study is not required to be and has not been filed with the Commodity Futures Trading Commission ("CFTC"). The CFTC does not pass upon the adequacy or accuracy of this commodity trading advisor disclosure. Consequently, the CFTC has not reviewed or approved this case study. See further disclaimer below.

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