Index basis
Which benchmark prices the cargo: IODEX CFR China, 58% Fe, 65% Fe, lump premium, port stock, or brand differential.
Cash-settled hedging for steel procurement
Turn commodity price volatility into a board controlled cost range.
Commodity Hedging & Trading helps procurement teams translate benchmark-linked cargo exposure into hedge policy, instrument choice, collateral planning, and procurement-margin scenarios.
Not a promise of savings. A hedge can reduce benchmark price exposure while leaving basis, liquidity, collateral, and execution risk.
Physical book
100-180kt/month
floating index exposure
Derivative book
SGX / OTC
cash-settled structures
Risk lens
effective ore cost
after hedge P/L
Tape values are illustrative, not live licensed market data.
Exposure map
Hedging starts by naming the risk that actually hits the mill.
A derivative can settle cleanly against an index, while the cargo invoice still contains grade, freight, moisture, port, timing, and contract-basis differences. Good hedge design separates those lines before execution.
Quality basis
Fe content, alumina, silica, phosphorus, moisture, sinter feed mix, lump ratio, and the premium or penalty against benchmark.
Delivery basis
CFR/FOB terms, freight, laycan, port, inspection date, and the mismatch between physical pricing and derivative settlement.
Margin basis
Finished steel price lag, coke and coal cost, billet or HRC realization, and the mill's tolerance for cash-flow volatility.
01
Long futures or swap
Budget certaintyOffsets benchmark price rises but gives back some benefit if the index falls.
No option premium, but mark-to-market and margin calls matter.
02
Long call option
Upside protectionProtects above the strike while letting the mill benefit from lower physical prices.
Premium is paid up front or embedded in structure economics.
03
Buyer collar
Lower premium rangeCaps upside exposure and gives up some downside benefit below the put strike.
Can reduce premium, but introduces a floor-style obligation.
Procurement desk simulator
Test how the hedge changes the mill's effective ore cost.
Physical ore cost minus cash-settled derivative P/L equals effective cost. Option premium is included in derivative P/L for calls and collars. This model is simplified for policy discussion.
What this readout means
A positive derivative P/L can offset higher physical ore cost. A negative derivative P/L is not automatically failure if the policy objective was cost certainty. The model excludes freight, grade premia, FX, taxes, clearing fees, and credit limits.Governance and impact
The impact is not just price. It is liquidity, margin, and board control.
Hedging may stabilize procurement cost, support budgeting, and reduce earnings volatility. It can also create mark-to-market losses, collateral calls, and basis mismatches. A serious program makes those tradeoffs visible before the first lot is placed.
Hedge ratio
Set protected tonnes by budget risk, production certainty, and board tolerance.
Tenor ladder
Layer monthly lots instead of concentrating risk into one execution window.
Collateral plan
Pre-approve margin liquidity so a correct hedge does not become a cash crisis.
Basis review
Report grade, freight, FX, tax, and physical contract mismatch separately from derivative P/L.
What the v1 model excludes
The calculator is a policy lens, not a trading system.
Use it to discuss structure and direction. A final hedge book must use licensed data, legal documentation, suitability review, clearing or counterparty terms, and treasury approval.
Live licensed market data
Brokerage, slippage, clearing fees
Freight and port charges
FX, GST/VAT, tax, and working capital
Credit limits and legal suitability checks
Grade premia, impurity penalties, and brand adjustments
Private risk review
Bring the next quarter's ore book. Leave with a hedge decision map.
For decision makers
Procurement, treasury, CFO office, and risk committees.
For margin control
Budget protection, upside participation, and liquidity discipline.
Disclaimer: this website is an educational and advisory demo. It is not investment advice, a solicitation, a regulated brokerage service, or a recommendation to trade derivatives. Any real hedge program requires licensed counterparties, legal review, suitability checks, and independent market data.