Grand Project on

Hedging Strategies for Aluminum

Prepared by: Chinmay Bhuva:- MBA 220 Gatursingh Barad:- MBA 215

Outline

Research Objective Research Design & Methods What is Hedging? Survey of Data & Questionnaire Conclusion & Suggestions

Research Objective

To study the functioning of commodity market. To study the options available to minimize the risk and increase profits on investments made. To study the risk that a firm faces from price fluctuation of aluminum in the commodity market. Future benefits of the hedging strategy.

Research Design & Methods

Data Source: Primary Sources: Primary data is covered from Manufacturer of aluminum products through questionnaire and interview. Secondary Source: Secondary data is obtained from Books, Magazines, Newspapers and Internet websites. Sample size: Sample size: 40 Manufacturing Units.

Commodities
Metals
Precious Metals
Gold/Silver PGM

Energy
Crude Oil Natural Gas Aluminium

Farm Commodities
Farm Animals
Live Cattle Grains
Corn Wheat Oats Barley

Base Metals

Agro Products
Oil Complex
Soybean Canola Soymeal Soy oil

Food
Cocoa Coffee Sugar Spices

Fiber
Cotton Jute

Propane
Copper

Lean Hogs
Pork Bellies

Electricity
Zinc Nickel

Tin Lead

What is hedging?

Hedging is the most common method of price risk management. It is the strategy of offsetting price risk that is inherent in a spot market by taking an equal but opposite position in the futures market. A Hedging is an investment that is taken out specifically to reduce or cancel out the risk in another investment. Hedging is designed to minimize exposure to an unwanted business risk.

An Example - Guarseed

Survey of Data & Questionnaire

1. Do you know hedging?

10%

YES NO

90%

2. What is annual requirement?

9% 26% 1000T-2000T 2000T-5000T ABOVE 5000T

65%

3. Which kind of aluminum do you use as a raw material?

10% 25% 20% Aluminum Utensil Scrap Aluminum Ingoat Aluminum MCX Steel Mild Gaziabad

45%

4. Is the raw material used by you being currently traded in the market?
27%

YES NO

73%

5. Which kind of aluminum do you hedge?

25% Aluminium MCX (1K) Steel Mild Gaziabad (1T) 75%

6. Which kind of contract do you use?

100%

0%

FUTURE FORWARD

7. What is the reason for not hedging?

25% Knowledge Tedious Task Fund

48%

27%

CONCLUSION

Lack of knowledge regarding hedging Insufficient fund for margin Tedious task Raw material used is not traded in the exchange.

SUGGESTIONS

As aluminum utensil scrap is being used by 45% of manufacturers but it is not available for hedging on exchange. The exchange should allow trading this type of aluminum. The government should start awareness program because 48% of total manufacturers are not aware about hedging.

Thank You