Profitable Plastics: Hedging triggers


Last time, we discussed the most effective means for processors to hedge forward resins costs: outright purchases of physical supply or futures in polypropylene or polyethylene or protective purchases.

Outright purchases means buying (locking in) forward prices to eliminate price risk; protective purchases means buying options in crude oil futures or ETFs to limit price risk. (Crude oil options are a proxy for resins options until they become available in the futures market, though processors could request resins options from their suppliers—to their mutual benefit.)

There is a third hedging choice that processors may take and most processors only take: do nothing.

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