Commodity Trading and Risk Management
Hedging price fluctuation risks and managing risk positions
Commodity prices fluctuate constantly. Some commodity prices fluctuate by double-digit percentages within a year. SAP Commodity Risk Management offers the possibility to hedge the resulting financial risks and thus implement the company’s own hedge strategy.
SAP’s Commodity Risk Management solution can be divided into various blocks:
Commodity Derivatives Management
SAP Commodity Risk Management can be used to map both exchange-traded and OTC transactions in accordance with current accounting regulations. For this purpose, the SAP solution provides forwards, swaps, futures, and options in various forms. These derivatives are based on specific contracts (Derivative Contract Specification — DCS). These are exchange-dependent and can also be managed in the solution.
Calculation of Key Figures for Commodity Derivatives
Market Risk Analyzer with Mark to Market and Option Price Calculations: In addition to the mapping of derivatives, SAP’s Commodity Risk Management also offers the possibility to calculate various key figures for the positions in the portfolio. As an example for such key figures, the mark to market or the time value of options can be mentioned.
MTM Reporting & Commodity Position Reporting
Mark to market consideration of the derivative portfolio and management of the risk position: Two key requirements in the commodity environment are the consideration and active management of the risk position and the current mark to market valuation. The risk position of each derivative can be viewed in Position Reporting. The current mark to market valuation can be viewed in the corresponding mark to market reporting. If the SAP Commodity Sales & Procurement or SAP Agricultural Contract Management solution is also used, a holistic view of the physical and derivative risk and mark to market positions can also be taken here.
Order Transmission and Trade Execution
The solution “Commodity Derivative Order and Trade Execution” (CDOTE) available with S/4 HANA 1809 SP 2 has two goals:
On the one hand, it is the link between the logistical and derivative part of the SAP Commodity solution portfolio. Thus, with the help of the solution, price risks resulting from the logistical processes can be triggered directly at the broker and, upon confirmation by the broker, be created directly in SAP Commodity Risk Management as a derivative.
On the other hand, the solution generally serves as a channel to the broker and from the broker to the SAP system. The solution implements the message format for commodity futures defined with FIX 4.4 and FIX 4.5 and further offers the possibility to map format adaptations customer-specific. This allows communication with the broker system. Independently of this, a link to the broker can also be established without FIX by means of corresponding APIs.
SAP Commodity Risk Management
Do you need support with setting up or expanding your SAP Commodity Trading and Risk Management (SAP CTRM) solution?
Do you have any questions about commodity management, commodity pricing, commodity procurement and best practices?
Contact us! We will be happy to support you from process recording to implementation in the system.