BETTER MARGIN PREDICTABILITY

HEDGING EXCESS INVENTORY HELPED

Metallics Co.* was experiencing a serious dilemma as a number of circumstances, including the loss of a large customer, and attractive deals from suppliers, left them with more inventory than they had planned. The market had so far rewarded this position as prices continued to rise, but they feared the market could turn. They approached Metal Edge Partners to de-risk their organization against the downsides of an excessive inventory situation and position them favorably in the competitive steel marketplace.

OUR APPROACH

Metal Edge Partners provides our clients with ongoing risk assessments wherein we analyze their inventory, purchase, and sales commitments to elucidate natural exposures to commodity markets.

This ongoing process highlighted Metallics Co.* growing inventory position as purchase orders arrived and forecasted sales dropped. Combined with our macroeconomic analysis and commentary, we recommended the client to utilize derivative markets to protect their future revenues against a pricing downturn, effectively hedging a portion of their excess inventory position.

We accessed the forward markets through multiple channels to create price discovery and ensure our client executed a hedge at the best possible price for a portion of future sales. This gave the client revenue and margin predictability for a return on their excess inventory.

RESULTS

Our client was able to preserve the value of their excess inventory despite their customer loss, and was able to do so while continuing to sell to their other customers at competitive market prices. The predictability provided by our strategy allowed Metallics Co.* to establish stronger credibility for both the commercial as well as the financial teams.

*We take our client’s confidentiality seriously. Referrals are available on request.