USA Case Study 4

Country: United States
: Manufacturing
: Risk Management

Client: A global manufacturer of plastics and aluminum enlisted NUS Consulting to provide a risk management strategy for its natural gas purchases.

Result: NUS Consulting achieved year on year savings of 20 to 25 percent on behalf of the client.

Summary: In this case, the client hired NUS Consulting to provide active management of its natural gas purchases on the New York Mercantile Exchange (NYMEX). Prior to NUS’s involvement, the client was on a basis contract and hedged calendar year strips. This strategy exposed the client to unnecessary seasonal premiums (i.e. paying up for winter contracts long before delivery, which carry seasonal and time related premiums). To avoid these costs and minimize exposure to seasonal volatility, NUS Consulting recommended the client hedge for shorter time periods. Towards the end of the year, market sentiment indicated that the economy would improve, implying increasing demand and higher energy prices for the coming year. However, NUS anticipated flatter economic growth and identified an oversupplied market. Consequently, NUS recommended the client continue hedging short term. Prices for the first three months of the year fell substantially, contrary to the expectations of market participants. Through NUS Consulting’s experience and insight the client was able to save 20 to 25 percent year on year.