To help in hedging against metal price volatility

M. Ramesh

Getting set

Move follows

concern over rising commodity prices.

Desk a

preparation for the company when the market opens up for more commodities.

Vendors, too,

being asked to hedge against rising prices.

Chennai, Aug. 25

Ashok Leyland will set up a `commodity desk', which will trade on the commodity exchanges if the company's board permits.

The idea, hatched between the `strategic sourcing' and `finance' departments and developed in consultation with National Commodity & Derivatives Exchange Ltd, has matured to a stage where it could be taken to the board, Mr Anup Bhat, Executive Director - Strategic Sourcing, told

Business Line.

Mr Bhat said at a time when commodity prices were rising, it was necessary to look at hedging options.

Hedging options

Observing that it was extremely difficult to offset raw material costs by raising volumes alone, he said the company had to look at all ways of "managing volatility".

Ashok Leyland's interest in trading is in metals such as aluminium, copper, nickel, zinc and steel. Today, it is only the company vendors who buy these metals to manufacture components.

The company buys steel, but only HR and CR coils, which are not traded on the commodity exchanges.

However, Mr Bhat felt that there were advantages of getting into commodity trading. Sooner or later products that the company buys would be permitted to be traded on the exchanges.

Trading skills

Ashok Leyland would like to "wet our toes" in the market to develop trading skills in the company, so that it is well prepared to trade in full swing when the market opens up for more commodities.

Secondly, Mr Bhat said Ashok Leyland was asking its vendors to hedge themselves against sharp increase in metal prices. These companies, in turn, were looking to Ashok Leyland for assistance just as they receive assistance in firming up contracts for buying commodities in the spot market.

Ashok Leyland negotiates with companies such as Tata Steel and Mahindra Eugene Steel on behalf of its customers, so that rates could be fixed on bulk-order basis.

Mr Bhat said original equipment manufacturers had to work with their suppliers to reduce costs. Helping them hedge against price volatility in the commodity exchanges is one of the ways of doing that for which Ashok Leyland has to develop expertise. Hence the commodity desk.

(This article was published in the Business Line print edition dated August 26, 2006)
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