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  Chemair Technologies Ltd
Financial
The London Metal Exchange has announced that it will launch futures contracts for polypropylene and linear low density polyethylene on the 27th of May 2005. This innovation provides an opportunity for producers and consumers to manage the risks to their cash flows associated with the volatile prices of bulk thermoplastics. Companies who are interested in using these tools to professionally manage price risk will need to prepare themselves to benefit fully from the use of these instruments.
Edward Wilson of Chemair Technologies Ltd was the initiator of the contracts and has played a major role in their development. This experience puts Chemair in a unique position to advise those contemplating plastics hedging activities or involved with commodity trading.
Determining Hedging Requirements; Companies wishing to hedge will need to understand and determine their natural price exposure. Eliminating the necessity to hedge by developing natural hedges is far more cost effective than using derivatives. Chemair can help companies minimise their need protect cash flows using derivatives.
Derivative accounting; FASB133 in the USA and IAS39 require companies to comply with strict requirements to qualify for advantageous hedge accounting. Chemair can help companies structure to monitor and account for hedging activity. Chemair can recommend systems that companies can evaluate to manage their net positions and track hedge effectiveness.
Designing a strategy; Once exposures have been determined company managements need to formulate their hedging strategy and ensure this is clearly communicated to all levels of the organisation who will play a role in risk management of cash flows. Decisions will need to be made on whether tactical or strategic hedging is appropriate and an entry and trading strategy will need to be written.
Organising for trading; Chemair can assist companies with the establishment of training programs for key staff to ensure familiarity with the instruments and markets. We can also assist in designing internal trading rules containing appropriate checks and balances, and authorisation limits to protect the company against unauthorised trading. Chemair can also clarify and provide assistance with the formalities associated with account opening and maintenance. Companies that have not been involved in hedging will have to review pricing strategy and establish new communication links between sales, purchasing and the treasury function. Chemair has mapped these new relationships and can simplify the establishment of these links.
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