Hedging Base Metal Price Risks in the Automotive Industry

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Symposium organized by MCX, Majestic Auto Ltd, & Master Commodities Services in Ludhiana

Ludhiana (Punjab), March 01, 2016: Broadening its education and outreach efforts in Punjab, Multi Commodity Exchange of India Ltd. (MCX) organized a symposium on commodity futures market, and base metal price risk management on February 27, 2016 in Ludhiana (Punjab). The programme was organised in association with Master Commodities Services Ltd, and Majestic Auto Ltd. (A Hero Group Company)—a manufacturer of gearless two wheelers, and auto parts for the automobile industry. 

Through this awareness programme, officials from MCX and Master Trust Commodities aimed at providing base metal industry players in the region with a greater understanding and importance of the commodity futures market in India, and how the futures contracts offered by commodity exchanges such as MCX can be used to manage the impact of price volatility.

The sessions included a thorough introduction to the regulation, pricing, and hedging and settlement procedures for trading on the commodity exchanges. The interactive session further focused on functioning of commodity exchanges, the benefits of commodity futures, price discovery, and price risk management.

While highlighting the benefits of base metal futures contracts offered by MCX, Arvind Sharma, Assistant Vice President-Business Development & PKMT, MCX said, “The Exchange platform offers a varied size of contracts in base metals, thus facilitating gradual build-up or scaling down of hedge positions, better cash flows management, and better risk sizing. Besides, small sized contracts come in handy for micro, small, and medium enterprises (MSMEs).”

“Moreover, MCX metals futures prices treaded a high correlation with LME metal prices, which serve as a global benchmark, and are traded in Indian rupees; hence mitigating currency risks”, Mr. Sharma added.

Harjeet Singh Arora, Managing Director, Master Trust Ltd, said, “Thanks to the advancements in financial risk management, market-based tools, such as commodity futures contracts, have enabled some of the most effective risk management practices today. These tools are not only cheaper when compared with other alternatives, but are also some of the most effective instruments in managing price volatilities.”

Mahesh Munjal, Managing Director, Majestic Auto Ltd (A Hero Group Company) said, “I am of the belief that, a comprehensive hedging strategy in today’s increasingly competitive world should no longer be the prerogative of the big corporations or companies alone, but should be a business necessity for the long-term sustenance of every corporation or company, big or small, including the physical market players. Hence, in the current environment of heightened price volatility, hedging through commodity derivatives offered on exchanges such as MCX could not only propel metal stakeholders to stay competitive but quite possibly thrive and emerge stronger.”