The Hedging Corner: 20% gross margin for processors, price certainty for customers


ccording to a recent study (as reported by Clare Goldsberry, PlasticsToday, 27-June-11), 'earnings before interest, taxes, and owners' compensation for 150 plastics processors averaged little more than 8%. For the last 15 years, the return was just 5% to 7%. Meanwhile, utilization of injection molding machinery is also low, averaging less than 40% on a 24/7 basis.' Plastics processing is tough business, made tougher by offshore competition and weak companies who 'routinely low-ball quotes to keep the presses running'. However, processing is a lot harder than it has to be. Fear or unwillingness among processors to understand and apply cost and sales pricing tools (futures, swaps, options, etc.) to benefit themselves and their customers make it so. Why not earn 20% and have happy customers at the same time? Here's one way --
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