About hedging

Hedging is a tool to minimize price risk in a volatile market. To hedge, one takes a position in a forward market opposite to a position he has taken in the physical market. The goal is to compensate a loss or a gain taken in the physical market at the moment that delivery takes place. In this way, you can lock the revenue of a forward deal now.

The London Metal Exchange (LME) is offering hedging as a main function for its plastics futures market, next to price transparency. You can buy or sell futures to do hedge in the physical market. You can only make a perfect hedge if you can buy physical material at a price based on or similar to the LME price.

As an alternative BE 1 PFC is working on a project to offer you a hedging tool based on Icis and/or Platts prices, which will enable you to make perfect hedges with your physical purchase contracts.