Efficient Commodity Trading & Hedging with SAP

With the new SAP release ‘Commodity Price Risk Hedge Accounting’, which was delivered in October 2023, SAP is providing a trading and hedging solution for commodities for the first time, which enables a comprehensive hedging strategy for operational commodity risks from the operational areas (including SAP-MM, SAP-SD). Information is transferred directly from the logistics modules or financial accounting to SAP Exposure Management, a part of SAP Treasury and Risk Management (TRM). This transfer enables a comprehensive market risk assessment to be carried out for FX and commodities.

Based on the defined hedging strategies (FX and commodities), the data, for example for commodities in the Commodity Hedging Cockpit, is prepared and can be hedged efficiently. If there are changes in the operational area, these changes are automatically adjusted in SAP-TRM or the Hedge Cockpit.

Our SAP solutions

Transparency in all areas of the company – from product development, manufacturing, storage, sales and shipping to all subsequent commercial and logistical processes.

The smart connection between Zebra barcode scanners and SAP S/4HANA

Optimize your operational business activities, hedge your FX and commodity risks, and develop a hedge strategy.

Platform-as-a-Service, which connects on-premise and cloud applications, data and business processes and enables the development of proprietary applications via open interfaces.

Reliable ERP solution that can be used to map all key business areas

Check tax numbers automatically and in an audit-proof manner

Below is an example graph showing the price trend (€/tonne) of a certain type of steel. This example can be used to illustrate exposures and risk-minimising hedging transactions of companies in the steel industry:

Hedging strategy and hedging instruments

Without a hedging strategy and the associated hedging instruments, a company would expose itself to considerable market risk due to strong price fluctuations. For example, if it orders steel in June 2021 for a customer order that was created in December 2020 at a fixed price, it exposes itself to a high commodity risk due to the price increase shown in the chart and must expect a loss of revenue as a result.

However, if it establishes a robust hedging strategy with appropriate hedging instruments, this commodity exposure can be hedged, and price fluctuations can also be used to build strategic positions.

If, in addition to the customer order placed in December 2020, it agrees a forward contract fixing the purchase price of steel from December 2020 for purchases in June 2021, it eliminates the considerable price risk and the associated loss of revenue to which it would be exposed without such a forward contract and the associated fixing of the purchase price.

Features of the SAP Commodity and Risk Management solution

To make informed decisions about the hedging strategy for commodity exposures, we recommend using the new SAP Commodity and Risk Management solution, which offers the following functions:

Recording and managing planning and price risk data, evaluating risk indicators through direct integration with SAP Market Risk Analyzer
Hedge books: recording, monitoring, and hedging commodity exposures, hedging strategies, hedge accounting, risk assessment, and reporting
Establishing a hedging relationship between hedging transactions and exposures (basis for hedge accounting)
Seamless integration with SAP FI, SAP MM, and SAP SD
Order cockpit for financial transactions
Enabling correspondence with banks/brokers
Compliance with accounting regulations according to HGB/IFRS9
Direct connection to external trading platforms, import of hedging transactions via XML file

Would you like more information on “Efficient Commodity Trading & Hedging with SAP”? Contact us directly, we will be happy to provide you with further details.

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