Is it time to hedge copper?

Seeking Price Stability for Machined Components

We have fielded many inquiries from our client base seeking price stability in the wildly fluctuating non-ferrous metal market. Most of our clients build large machinery where our supply of machined gear blanks and aluminum bronze bushings form a very small percentage of the final machine. However, the metal adjustments forced on us by market conditions are making that small component a big cost head-ache for our clients. This results in tense negotiations between staff already affected by the global downturn and due entirely to events beyond our control which can be very frustrating.

There are several ways we can help. If the volume of parts going to any client is large enough, we can buy copper hedges to fix the price over a period of time. The main pitfall for the client is that they have to contract to purchasing a volume of product over a period of time - usually 6 to 12 months. There is also uncertainty over whether the economic recovery, such as we are seeing at the moment, will last. Newsweek have written an excellent article on this subject. If commodity prices crash again, the implication for the companies that have hedged at the higher value is that they will be left buying stock at the higher agreed value and miss out on a windfall. However, the benefits of cost certainty should not be too easily dismissed. Please contact us if you want to explore the option to hedge copper.

We are also interested to hear how others in our industry are coping with the current rapid rise in the metal market, so please leave us your comments or let us know if you want to hear from us about a specific subject. To leave a comment view the full article and then click on the Leave a Comment link at the bottom of the page.