Price Risk Management

Risk management solutions for today’s world

Risk management tools allow steel processors large and small to deliver fixed prices to their customers without taking margin risk. In addition, companies who must hold inventory are often exposed to significant losses if the market falls; the proper use of risk management tools allows you to “de-risk” your exposure in either scenario.

Plateplus can provide you with both the information you need to make an informed decision about these risk-mitigating products. To learn more about our risk management experience and how it can help your business be more successful, contact us online today or find the location nearest to you.

How to use financial tools to manage risk

Financial tools, when used correctly and in conjunction with physical delivery, can provide increased opportunities to reduce risk and lock in profits.

  1. Lock in profits: Financial tools allow the consumer to lock in their future cost of steel ensuring them that when they produce their product 6-12 months later they will know their cost ensuring a margin.
  2. Manage price risk: Because of the increase in steel price volatility, companies that hold 2-3 months of inventory are exposed to significant losses in a rapidly falling market. The proper use of risk management products would allow these consumers the ability to "de-risk" their exposure to heavy losses by entering into futures sales contracts.

What are derivatives?

Derivatives are a common risk management product. A derivative is a buy/sell contract whose value is derived from the value of the underlying asset.


How do NYMEX contracts work?

Sellers and buyers enter into derivatives contracts at a price that is based on the underlying price of the asset. Again, the contract price is derived from the value of the underlying asset, but it does not include any physical ownership of the asset.


Manufacturing and lead time risk: How to hedge

Because there is now a paper market for hot-rolled coil, the cost of a finished product can be locked in to insure an acceptable and stable margin on future delivered products.


Reduce risk through hedging

Hedging is removing exposure or risk by offsetting it with something of the opposite risk.


U.S. Midwest domestic HRC steel contract specifications

Venue: CME Globex, CME ClearPort

Trading Hours (Eastern): CME Globex: Sunday - Friday 6:00pm - 5:15pm with a 45-minute break each day beginning at 5:15pm

Contract type: Futures contract

Contract Size: 20 short tons

Underlying Currency: U.S. dollars

Minimum Price Quotation: $1.00 per short ton

Trading Months: 24 consecutive trading months

Settlement Type: Financial

Final Settlement: The average of the prices reported by CRU Indices during the contract month for the reference index

Last Trading Day: Last business day prior to last Wednesday of the month

Daily Settlement Price: Exchange compilation of broker prices and CME Globex

Margins: Margins are required for open futures positions


Get the latest hot-rolled coil derivatives price information on the CME NYMEX exchange