SlideShare a Scribd company logo
1 of 52
Price Risk Management

               ICE
1st Trading, Risk and Hedging Forum
         Geneva, 22 April 2009
Outline

1.   Outlook for Prices

2.   Counterparty Credit Risk amidst the Credit Crunch

3.   Hedging Policies & Instruments in a hyper-volatile era

4.   Current Situation

5.   KOCH Industries
1. Outlook for Prices
Prices, a bird’s eye view in 4 phases
5 years, continuous 1st nearby ICE Brent




                                               Credit c
                                        c
                                    oli
                                 ab
                                r
                             pa




                                                       r
                                                  unch
                           ing
                         Go
 The new “asset” class

                                            Healing Mode
An Asset Class was born

•   Accommodative availability of credit
•   Tolerance for high leverage
•   Light touch regulatory environment
•   Digitalization of trading
+
•   Above-trend growth of consumption in Asia
•   Low OPEC spare capacity

= overly aggressive allocation of capital in energy
  financial markets, some even called it a “bubble”.
Oil Price elasticity vs. Credit Crunch

• Prior to Credit Meltdown, energy prices fulfilled their
  “signal role” in fostering physical demand destruction.
• This physical demand destruction kicked in as soon as
  2007 while in parabolic phase. Timing varied from slate to
  slate due to wide crack product differentials.

• Credit Crunch shocked the appetite for oil financial
  exposure, a mix of risk aversion and major de-leveraging.
• The manufacturing sectors across time zones slumped in
  unison, furthering weakness. Petchems a perfect
  example.
DOT: US Vehicle Miles Traffic
DOT: US Vehicle Miles Traffic




                            Drop started
                            Early 2008
Port of Los Angeles Traffic
(in TEUs)




A TEU is a 20-foot-long cargo container
Prices, where are we today?
6 months, continuous 1st nearby ICE Brent




                   Bottomed out?



  $45/bbl
A market in need of Healing (1)


• Extreme Price ranges lowers participants' pain
  threshold. Capital de-leveraging cuts VAR
  allocations in financial institutions hit by balance-
  sheet constraints. Shock absorbers are cautious.

• Such extremes make long term industrial and
  infrastructure investment planning hazardous.
A market in need of Healing (2)

  • Parabolic Prices triggered a political outcry
    aiming for a major regulatory overhaul in
    OTC trading. Prices receded since then, not
    the political will…
  • Ratable hedgers step back, stop and amend
    hedge programs, rethink Risk Management
    policies.
  • Oil markets have to mean-revert to Supply &
    Demand balances. In other words,
    speculators typically exacerbate trends,
    rarely contrarians to S&D.
Prices: participant’s framework

After many years building our presence by either being
    directly involved in various physical and paper oil
  businesses or by adding tangible economic value to
    our customers’ relationships, we believe at Koch
   Industries that we are in a good position to analyze
              and anticipate oil market trends:

   Invista / Flint Hill Resources / Georgia-Pacific / KS&T
Slates, Runs and Freight

• Excess refining capacity active in international trade
   – Jamnagar 2 not in full force yet, RFCC ramping up next month
   – Japan demand low, Kashiwazaki-Kariwa nuclear plant re-
      commissioned shortly?
• Distillates plentiful despite above-average Northern hemisphere HDD
  season. The coldest season in 24 years in NWE
• Gasoline picture much better balanced, yield switching reverse of 2008
• Naphtha weak but supply impaired
• Fuel Oil comparatively healthy on tight sour and discriminatory
  steadiness in maintaining conversion utilization. High-Lows narrow as
  OPEC cuts heaviest grades.
• TCE* rates depressed

  TCE= Time Chartered Equivalent
2. Counterparty Credit Risk amidst Credit Crunch
Documentation and standards


                                      Credit support
                ISDA



 Margin
                        Calculation



                                            Confirmations
Settlement procedures




                                                            16
Documentation – importance of
standards

• Most derivatives contracts have standardized features regarding
  pricing conventions and settlement
• Protect both parties in the transaction while maintaining uniformity
  among portfolio of positions
• International Swaps and Derivatives Association (ISDA) maintains
  and refines industry standards
      Index definition
      Settlement calculations
      Credit terms
      Payment instructions
                                                                     17
Credit considerations

• Bilateral transactions involve credit exposure
• All dealers and most large institutional users of bilateral
  derivatives maintain a credit evaluation capability to monitor their
  counterparties
• Credit exposure managed primarily via stated credit thresholds
  either in confirmations or in ISDA Credit Support Annexes
• Cash or securities can be used to guaranty performance on
  derivative settlement
• Other clauses may allow parties to close out of transactions if
  sufficient evidence exists that a counterparty may default

                                                                     18
Guarantees


• Frequently the contracting parties to a bilateral transaction are not
  publicly-rated entities

• They may require more onerous credit terms, such as tighter
  thresholds

• Alternatively, they may seek guarantees from rated parent
  companies


                                                                      19
Enforceability and regulation


• Over-the-counter derivatives are acknowledged in most
  jurisdictions
• They are typically not as highly regulated as listed futures
  markets
       Self-monitoring by industry groups tends to be the norm
• Unlike listed futures markets, OTC derivatives may not be
  enforceable in all countries
• There is an added level of exposure to counterparties in these
  countries who may decide not to perform on a derivative that is
  out-of-the-money
                                                                    20
Rebalancing of Exchanges and OTC

• IPE/ICE now offering clearing of OTC contracts
• Fulfills necessary role of credit intermediation
• Credit risk borne by clearing members
• Enables price risk managers to hedge risks
  customized to their needs while not taking on
  counterparty credit risk
• Cost is upfront margin and subsequent margining,
  which may not be necessary in bilateral OTC
  contracts
3. Hedging Policies & Instruments
    in hyper-volatile era
Classification of hedging programs



                     Ratable   Opportunistic

                       No          Yes
   Discretionary

                      Yes       Constrained
 Non-discretionary




                                               23
Discretionary vs. nondiscretionary

• A small number of hedgers take a discretionary approach

     Market timing, based on knowledge gained from other
     participants and dealers
     Role of research, consulting agreements

• The vast majority of hedgers are less discretionary

     Reflects their admission of not having superior market
     knowledge
     Price takers
     Trend followers
                                                              24
Discretionary programs

• Discretionary hedging programs may be extremely flexible

• Buying and selling hedges based upon market point of view
  gathered internally or with input from outsiders

• But difficult to explain to shareholders

• Also may not dampen volatility of physical exposure as traders
  may choose not to be hedged or even to increase exposure

                                                                   25
Nondiscretionary: two main types

• Constant-volume, or ratable-volume

     Involves defined-volume, defined-frequency accumulation of
     hedges regardless of price
     Can involve any particular structure (swaps, collars, caps)

• Structured opportunistic

     Accumulates hedges according to price levels
     May also dictate structures employed at any given price level

                                                                   26
Constant-volume programs

        • Example: buying 1-year forward once per quarter in
          volumes corresponding to 10% of total consumption

          – After four quarters, hedge volume equal to 40% of that period’s consumption;
            30% of 2nd quarter’s consumption; 20% of 3rd quarter’s consumption; and
            10% of 4th quarter’s consumption
          – Total volume of hedge position equal to full quarter’s consumption
          – Price appreciation/depreciation should affect hedge book and physical
            exposure similarly, though not perfectly given “beta” effect
          – Given the dollar-weight averaging of entry prices, the value of the hedge will
            have somewhat dampened volatility vs. entry levels

                                                                                        27
ISDA®
ISDA®
Structured Opportunistic programs

• May be as rigidly applied as constant-volume programs
  (i.e. without discretion)
• But rigid in a very different way – via statistical analysis of
  historical prices
• Hedges are entered according to how forward prices
  relate to historical averages
• Hedge volumes grow as prices drop, and vice-versa
• Choice of instruments may also be a function of price
  levels
Structured Opportunistic pros/cons

• Benefit from lower volatility of hedge value vs. ratable programs
     All other things equal, the size of a S.O. hedge position is equal to
     or lesser than the size of a ratable hedge position

• Effective as long as market behaves according to historical price
  distribution
• Downside: leave consumer un-hedged in persistently strong market
• Alternatively, can saddle hedge book length in persistently weak
  market
• Tends not to benefit from term structure as ratable programs do
• Indeed, structured opportunistic programs generally hurt by term
  structure (buying in contango market; exposed in backward market)
Price Dive and Consumer Hedging

• Regardless of the robustness of your Monte-Carlo risk engine, it
  is unlikely that the $147 through $35 move constituted a
  reasonable or even likely price scenario.
• Consumers hedgers got scattered in all quadrants:
  From
   – Reactive and cutting losses relatively early.
    All the way to
    – Did not do anything at all.
                                           in
• But all are revising their hedge program parameters,
   particular how recursive the decision-making
   process should become.
Choice of instruments

• Typical: Buy swaps at relatively low prices
     1.5+ standard deviations below long-term averages
     Probability of hedge losing value is relatively low
     Potential mark-to-market costs (margin) lowest

• Enter collars or ceilings at median prices
     Provides more flexibility on MTM should market decline from
     average levels

• Buy caps or do nothing at higher prices
     Potential for hedge losses proportionately greater
Rules of thumb on allocation of
instruments
• One simple rule of thumb is to hedge one-third of exposure via
  swaps; another third via collars; and leave the balance unhedged

• Justified by its risk profile as halfway between hedged and
  unhedged

• In practice, this is just a point on the continuum; there may be solid
  reasons to choose alternative points

• For structured opportunistic, the decision regarding mix of hedges
  may be a function of forward prices
Views on structures

• New structures marketed as offering greater value than existing
  products
     There is no free lunch, please do not fall for smoke & mirrors!
     Any structure can be offered more cheaply if the buyer is willing to
     maintain or increase exposure
     Always calculate your leverage ex-ante! TARS horror stories…

• A derivatives dealer can develop risk-management tools for any
  specific exposures via existing or novel structures
     Need to establish client objectives
     Relative importance of net cash cost
     Predictability vs. buying low
Example #4: storage hedge collar

• Strip of European-style zero-cost collars (floor vs. cap) on
  crude oil term structure to protect against severe
  backwardation and/or benefit from contango shape.

• Inventory hedges are typically rolling short futures positions

• The storage hedge collar provides protection against
  backwardation, not necessarily spike in outright price

• Another example of a spread option
                                                                   34
4. Current Situation
We don’t do Price forecasts

• But it appears that once excess physical inventory is
  eventually mopped up, all necessary conditions are in place
  for the resumption of a bullish bias:

   – Vastly expansionary monetary stance in key Central Banks
     impacts the differed part of the forward curves.

   – E&P, Refining and Downstream investment in slowdown mode.

   – The return of speculators to Oil, the “macro trade” is alive and
     well. Inflation hedge, diversification from the $, lack of alternatives
     have led to higher open interest and volumes on ICE.
A wall of cash…
Slowdown in Investments?
US & Canada Rig Count
Oil Supply adjusting to crisis

• With lower price environment, some Projects
  schedules delayed, some scrapped.
  – In non-OPEC, IEA estimates 1 mm bpd for 2009/10
• Steeper decline rates from mature fields as
  maintenance spending is trimmed.
• Those factors impact with a lag even in case the
  market rebounds, some are non-reversible. [sticky
  factor]
What matters today? (1)

• Do we still have too much oil supplied and what is
  OPEC doing about it?
   – Inventories plentiful, have been rising for 7 months.
   – Still building but not as fast.
   – Contango shape allows storage balancing mechanism.

• OPEC in catch-up mode for cuts while demand
  revisions pace quicken
   – OPEC tightening compliance and will persist
   – Refiners adjusting to low-run world as refining in excess
     capacity.
What matters today? (2)

• The macro-trade is alive and kicking. Risk/reward is
  alluring. How much downside left?...

• Speculative positions (OI & Volumes) on the oil exchanges
  have increased again since a low in October 2008

• A recent survey of 1,000 hedge funds by Deutsche Bank
  indicates that a quarter of $294 billion held in cash should
  find its way into highly favored “global macro strategy”
  within 6 months.
What matters today? (3)

• Asia seems to be leading the way on bottoming
  out process. Ethylene crackers now in full runs
  again in Korea, Taiwan, etc…

• How sustainable is China as the new world growth
  leader? How reliable is domestic demand for the
  medium-term? Besides infrastructure spending…
Recent regulatory developments

• Pension and hedge funds in the crosshair last July
• Now very much a CDS story as oil receded.
• Last February, anti-speculation measures specific to
  commodities markets passed House but vetoed
• On the agenda of the new administration but unclear which
  House Committee is taking the lead between Financial
  Services Committee and Energy and Commerce
  Committee.
• Unregulated OTC trading defended by financial institutions.
• OTC Clearing trend versus speculative position limits
• London loophole, what London loophole?
Prices: a word about Natural Gas

• Natural Gas world in Europe still has a split personality: NBP in the UK
  and GO/FO formulas on the continent due to long-term supply contracts
  pricing mechanism.

• NBP is still the dominant hub in NWE Europe as competition restriction
  prevent the other continental hubs from taking their rightful place - still
  influenced by oil prices in the forward season but will break below
  European Benchmark Prices and surrender to UK Supply / Demand in
  short-term.

• Our NBP Point of View: rather bearish for summer given supply situation,
  initially we think winter prices will be supported by utility hedging and lack
  of storage.

• European Benchmark Price (a rough estimate of the oil index formula
  prices - e.g. German average import price)
5. Koch Industries
Koch Industries - Overview

•   Koch Industries is among the world's largest private companies. Founded in
    1940, it is owned and managed by Charles and David Koch.

•   Koch has interests spanning involvement in commodities (metals, petroleum,
    minerals etc.) and securities trading through to owning and operating refining and
    manufacturing facilities.

•   As evidence of its financial strength Koch Resources, LLC maintains a long-term
    S&P A+ and Moody’s Aa3 credit rating.

•   Trading operations located in London, Geneva, Singapore, Houston, New York,
    Wichita, Kansas (Corporate Headquarters), Rotterdam and Mumbai.

•   Information: www.kochind.com www.ksandt.com www.kochmetals.com
    http:/derivatives.kochind.com www.kochsteel.com www.kochbullion.com
Koch Business Groups

   Koch Industries owns a diverse group of companies that exercise capabilities in
   trading, operations excellence and investments on a global scale in core
   industries that include: trading; petroleum; asphalt; natural gas; gas liquids;
   chemicals ;metals, plastics and fibers; chemical technology equipment; minerals;
   fertilizers; ranching; pipelines; pulp; securities and finance, as well as a range of
   other ventures and investments. Some of the principal companies include:

                                                           Koch Financial Corporation
Koch Supply & Trading, LP
                                                            Koch Materials Company
Koch Supply & Trading, Sàrl
                                                        Koch Chemical Technology Group
Koch Metals Trading Limited
                                                                     KoSa
   Flint Hills Resources
                                                                    INVISTA
Koch Mineral Services, LLC
                                                                 Georgia-Pacific
   Koch Capital Markets
      Koch Ventures
Koch Supply & Trading - Overview

• Koch Supply & Trading, LP (KS&T) is a global supply, marketing,
  trading and risk management group conducting business in crude
  oil, refined petroleum products, petrochemical feedstock, freight,
  base metals, steel and other commodities.
• Today KS&T is among the world’s top five crude oil traders and
  actively trades about 50 types of crude oil around the world.
• KS&T trades in physical commodity markets and is also an active
  market-maker of innovative risk management solutions for a wide
  range of customers, including several large oil producers
• KS&T emphasizes a disciplined, strategic approach, with a focus on
  customer needs, market analysis and risk-management
  capabilities.
• Information: www.ksandt.com http:/derivatives.kochind.com
Koch Supply & Trading: Activities

•   Worldwide trading and risk management activities in crude oil, refined petroleum
    products, metals and other commodities:
     –   Global Crude Oil (trading some 50 different types of crude)
     –   Light Products and Chemicals
     –   Natural gas and gas liquids
     –   Heavy Products (e.g. industrial and bunker fuels)

     – Base Metals (Al, Cu, Zn, Pb, Ni, Sn and brass) incl. online trading
     – Steel (hot and cold rolled coils)



•   For additional information see: www.kochmetals.com
Koch Supply & Trading – Contacts

 Structured Products
 New York    Ilia Bouchouev      (212) 759-8146    ilia.bouchouev@kochind.com
             Nicholas Dazzo      (212) 319-4895    nicholas.dazzo@kochind.com
             Patrick Melia       (212) 759-8123    patrick.melia@kochind.com
             Adam Glassman       (212) 355-3417    adam.glassman@kochind.com
             Joseph Master       (212) 644-0286    joe.master@kochind.com
             Ashutosh Tayshete   (212) 319-5163    ashutosh.tayshete@kochind.com

 Wichita     Arian Fouquet       (316) 828-3888    arian.fouquet@kochind.com
             Brett Johnson       (316) 828-8884    brett.johnson@kochind.com
             Wes Osbourn         (316) 828-5882    wes.osbourn@kochind.com
             Brett Unrein        (316) 828-7178    brett.unrein@kochind.com

 Geneva      Olivier Raevel      41-22-737-4229    olivier.raevel@kochind.com
             George Christie     41-22-737-4225    george.christie@kochind.com
             Christian Jestin    41-22-737-4221    christian.jestin@kochind.com
             Brian Carpani       41-22-737-4244    brian.carpani@kochind.com

 Singapore   Dennis Ho           65-6831-6560      dennis.ho@kochind.com

 Mumbai      S. Ramani           91-22-2403-8437   ramanis@kochind.com
Disclaimer

   Note: These forecasts/data/analysis are based upon a number of estimates and
   assumptions. Actual results may vary significantly. No assurance or guarantee is made
   that these forecasts will be achieved.


   Please be advised that the analysis, examples and prices provided above are for
   illustrative purposes only. Although the information has been compiled by Koch from
   sources believed to be reliable, these financial forecasts are based upon a number of
   estimates and assumptions that are subject to significant business, economic, regulatory
   and competitive uncertainties. Forecasts are inherently subjective and speculative, and
   actual results and subsequent forecasts may vary significantly from these forecasts. Koch
   makes no representation, warranty or guarantee as to, and shall not be responsible for the
   accuracy or completeness of, this information and has no obligation to update any
   information provided to you. Koch shall not be liable to recipient or any third party for its
   use of or reliance on the information contained herein. Koch is not acting as your agent or
   advisor and you are encouraged to seek independent advice, as necessary, prior to
   entering into any transaction. This information may not be reproduced, distributed or
   published by any recipient for any purpose.

More Related Content

What's hot

Derivatives and risk_management with problems
Derivatives and risk_management with problemsDerivatives and risk_management with problems
Derivatives and risk_management with problemsUmaP28
 
Derivatives kotak 2010
Derivatives kotak 2010Derivatives kotak 2010
Derivatives kotak 2010Naren Goud
 
2. Trading - Understanding Derivatives
2. Trading - Understanding Derivatives2. Trading - Understanding Derivatives
2. Trading - Understanding DerivativesKoffee Financial
 
Derivative market in nepal
Derivative market in nepalDerivative market in nepal
Derivative market in nepalPawan Kawan
 
Derivatives market in india
Derivatives market in indiaDerivatives market in india
Derivatives market in indiaProjects Kart
 
Global Derivatives 2014 - Did Basel put the final nail in the coffin of CSA D...
Global Derivatives 2014 - Did Basel put the final nail in the coffin of CSA D...Global Derivatives 2014 - Did Basel put the final nail in the coffin of CSA D...
Global Derivatives 2014 - Did Basel put the final nail in the coffin of CSA D...Alexandre Bon
 
Capital market innovation and derivatives
Capital market innovation and derivativesCapital market innovation and derivatives
Capital market innovation and derivativesDr. Mustafa Kozhikkal
 
International Banking and Foreign Exchange risk
International Banking and Foreign Exchange riskInternational Banking and Foreign Exchange risk
International Banking and Foreign Exchange riskKalpesh Arvind Shah
 
9.kalpesh arvind shah.subject international banking and foreign exchange risk
9.kalpesh arvind shah.subject international banking and foreign exchange risk9.kalpesh arvind shah.subject international banking and foreign exchange risk
9.kalpesh arvind shah.subject international banking and foreign exchange riskKalpesh Arvind Shah
 
Derivatives in Capital Market
Derivatives in Capital MarketDerivatives in Capital Market
Derivatives in Capital MarketSyed Irshad Ali
 
RiskMinds - Did Basel & IOSCO put the final nail in the coffin of CSA-discoun...
RiskMinds - Did Basel & IOSCO put the final nail in the coffin of CSA-discoun...RiskMinds - Did Basel & IOSCO put the final nail in the coffin of CSA-discoun...
RiskMinds - Did Basel & IOSCO put the final nail in the coffin of CSA-discoun...Alexandre Bon
 
Collateralisation: CVA & FVA - Murex - Alexandre Bon
Collateralisation: CVA & FVA - Murex - Alexandre BonCollateralisation: CVA & FVA - Murex - Alexandre Bon
Collateralisation: CVA & FVA - Murex - Alexandre BonAlexandre Bon
 
Introduction to derivatives
Introduction to derivativesIntroduction to derivatives
Introduction to derivativesAmeya Ranadive
 
Collateralisation: CVA & FVA - Murex - Alexandre Bon
Collateralisation: CVA & FVA - Murex - Alexandre BonCollateralisation: CVA & FVA - Murex - Alexandre Bon
Collateralisation: CVA & FVA - Murex - Alexandre BonAlexandre Bon
 

What's hot (20)

Derivatives and risk_management with problems
Derivatives and risk_management with problemsDerivatives and risk_management with problems
Derivatives and risk_management with problems
 
Derivatives kotak 2010
Derivatives kotak 2010Derivatives kotak 2010
Derivatives kotak 2010
 
2. Trading - Understanding Derivatives
2. Trading - Understanding Derivatives2. Trading - Understanding Derivatives
2. Trading - Understanding Derivatives
 
Derivative market in nepal
Derivative market in nepalDerivative market in nepal
Derivative market in nepal
 
Derivatives market in india
Derivatives market in indiaDerivatives market in india
Derivatives market in india
 
Global Derivatives 2014 - Did Basel put the final nail in the coffin of CSA D...
Global Derivatives 2014 - Did Basel put the final nail in the coffin of CSA D...Global Derivatives 2014 - Did Basel put the final nail in the coffin of CSA D...
Global Derivatives 2014 - Did Basel put the final nail in the coffin of CSA D...
 
Capital market innovation and derivatives
Capital market innovation and derivativesCapital market innovation and derivatives
Capital market innovation and derivatives
 
International Banking and Foreign Exchange risk
International Banking and Foreign Exchange riskInternational Banking and Foreign Exchange risk
International Banking and Foreign Exchange risk
 
9.kalpesh arvind shah.subject international banking and foreign exchange risk
9.kalpesh arvind shah.subject international banking and foreign exchange risk9.kalpesh arvind shah.subject international banking and foreign exchange risk
9.kalpesh arvind shah.subject international banking and foreign exchange risk
 
Derivatives in Capital Market
Derivatives in Capital MarketDerivatives in Capital Market
Derivatives in Capital Market
 
Derivative market
Derivative market  Derivative market
Derivative market
 
role of derivatives
role of derivativesrole of derivatives
role of derivatives
 
Derivative Market
Derivative MarketDerivative Market
Derivative Market
 
Derivatives in Islamic Finance - an overview
Derivatives in Islamic Finance - an overviewDerivatives in Islamic Finance - an overview
Derivatives in Islamic Finance - an overview
 
RiskMinds - Did Basel & IOSCO put the final nail in the coffin of CSA-discoun...
RiskMinds - Did Basel & IOSCO put the final nail in the coffin of CSA-discoun...RiskMinds - Did Basel & IOSCO put the final nail in the coffin of CSA-discoun...
RiskMinds - Did Basel & IOSCO put the final nail in the coffin of CSA-discoun...
 
Islamic derivative asgmnt
Islamic derivative asgmntIslamic derivative asgmnt
Islamic derivative asgmnt
 
Collateralisation: CVA & FVA - Murex - Alexandre Bon
Collateralisation: CVA & FVA - Murex - Alexandre BonCollateralisation: CVA & FVA - Murex - Alexandre Bon
Collateralisation: CVA & FVA - Murex - Alexandre Bon
 
001 Financial Derivatives
001 Financial Derivatives001 Financial Derivatives
001 Financial Derivatives
 
Introduction to derivatives
Introduction to derivativesIntroduction to derivatives
Introduction to derivatives
 
Collateralisation: CVA & FVA - Murex - Alexandre Bon
Collateralisation: CVA & FVA - Murex - Alexandre BonCollateralisation: CVA & FVA - Murex - Alexandre Bon
Collateralisation: CVA & FVA - Murex - Alexandre Bon
 

Viewers also liked

Koch Supply & Trading 2008
Koch Supply & Trading 2008Koch Supply & Trading 2008
Koch Supply & Trading 2008oraevel
 
Презентация с семинара Катри-Анн Малин: "Торговля деривативами на металлы и у...
Презентация с семинара Катри-Анн Малин: "Торговля деривативами на металлы и у...Презентация с семинара Катри-Анн Малин: "Торговля деривативами на металлы и у...
Презентация с семинара Катри-Анн Малин: "Торговля деривативами на металлы и у...TradeCruiser
 
Commodities Basics
Commodities BasicsCommodities Basics
Commodities Basicskunal256
 
Comment prospecter à l'international ?
Comment prospecter à l'international ?Comment prospecter à l'international ?
Comment prospecter à l'international ?Kompass
 
methods of payment in international trade
methods of payment in international trademethods of payment in international trade
methods of payment in international tradedeepak gupta
 
Koch Logistics Retail And Logistics Overview May 6 2008
Koch Logistics Retail And Logistics Overview May 6  2008Koch Logistics Retail And Logistics Overview May 6  2008
Koch Logistics Retail And Logistics Overview May 6 2008tqhall
 
Oil trading fundamentals. Module 1
Oil trading fundamentals. Module 1Oil trading fundamentals. Module 1
Oil trading fundamentals. Module 1TradeCruiser
 
Unit 5 Forex Risk Management
Unit 5 Forex Risk ManagementUnit 5 Forex Risk Management
Unit 5 Forex Risk ManagementCharu Rastogi
 
Foreign Exchange Risk Management (Currency Risk Management)
Foreign Exchange Risk Management (Currency Risk Management)Foreign Exchange Risk Management (Currency Risk Management)
Foreign Exchange Risk Management (Currency Risk Management)Hisham Rizvi
 
International business: THEORIES OF INTERNATIONAL TRADE
International business: THEORIES OF INTERNATIONAL TRADEInternational business: THEORIES OF INTERNATIONAL TRADE
International business: THEORIES OF INTERNATIONAL TRADERoni Kumar
 
Understanding the concept Contango, backwardation, convenience yield in Finan...
Understanding the concept Contango, backwardation, convenience yield in Finan...Understanding the concept Contango, backwardation, convenience yield in Finan...
Understanding the concept Contango, backwardation, convenience yield in Finan...Geeta Saravate
 
International trade ppt
International trade pptInternational trade ppt
International trade pptAndrea Mendoza
 
Foreign exchange risk
Foreign exchange riskForeign exchange risk
Foreign exchange riskLijo Stalin
 
Theories of international trade
Theories of international tradeTheories of international trade
Theories of international tradenisaa89
 
International Trade Theories
International Trade TheoriesInternational Trade Theories
International Trade Theoriesshanmugapriya
 

Viewers also liked (18)

Koch Supply & Trading 2008
Koch Supply & Trading 2008Koch Supply & Trading 2008
Koch Supply & Trading 2008
 
Презентация с семинара Катри-Анн Малин: "Торговля деривативами на металлы и у...
Презентация с семинара Катри-Анн Малин: "Торговля деривативами на металлы и у...Презентация с семинара Катри-Анн Малин: "Торговля деривативами на металлы и у...
Презентация с семинара Катри-Анн Малин: "Торговля деривативами на металлы и у...
 
The Basics of Oil Trading Episode 1
The Basics of Oil Trading Episode 1The Basics of Oil Trading Episode 1
The Basics of Oil Trading Episode 1
 
Commodities Basics
Commodities BasicsCommodities Basics
Commodities Basics
 
Prospection d'un marché export de a à z
Prospection d'un marché export de a à zProspection d'un marché export de a à z
Prospection d'un marché export de a à z
 
Comment prospecter à l'international ?
Comment prospecter à l'international ?Comment prospecter à l'international ?
Comment prospecter à l'international ?
 
methods of payment in international trade
methods of payment in international trademethods of payment in international trade
methods of payment in international trade
 
Koch Logistics Retail And Logistics Overview May 6 2008
Koch Logistics Retail And Logistics Overview May 6  2008Koch Logistics Retail And Logistics Overview May 6  2008
Koch Logistics Retail And Logistics Overview May 6 2008
 
FOREX MARKETS
FOREX MARKETSFOREX MARKETS
FOREX MARKETS
 
Oil trading fundamentals. Module 1
Oil trading fundamentals. Module 1Oil trading fundamentals. Module 1
Oil trading fundamentals. Module 1
 
Unit 5 Forex Risk Management
Unit 5 Forex Risk ManagementUnit 5 Forex Risk Management
Unit 5 Forex Risk Management
 
Foreign Exchange Risk Management (Currency Risk Management)
Foreign Exchange Risk Management (Currency Risk Management)Foreign Exchange Risk Management (Currency Risk Management)
Foreign Exchange Risk Management (Currency Risk Management)
 
International business: THEORIES OF INTERNATIONAL TRADE
International business: THEORIES OF INTERNATIONAL TRADEInternational business: THEORIES OF INTERNATIONAL TRADE
International business: THEORIES OF INTERNATIONAL TRADE
 
Understanding the concept Contango, backwardation, convenience yield in Finan...
Understanding the concept Contango, backwardation, convenience yield in Finan...Understanding the concept Contango, backwardation, convenience yield in Finan...
Understanding the concept Contango, backwardation, convenience yield in Finan...
 
International trade ppt
International trade pptInternational trade ppt
International trade ppt
 
Foreign exchange risk
Foreign exchange riskForeign exchange risk
Foreign exchange risk
 
Theories of international trade
Theories of international tradeTheories of international trade
Theories of international trade
 
International Trade Theories
International Trade TheoriesInternational Trade Theories
International Trade Theories
 

Similar to Ks&T Price Risk Management

Paradigm Shift Investing In Illiquid Assets Nov 2008
Paradigm Shift   Investing In Illiquid Assets Nov 2008Paradigm Shift   Investing In Illiquid Assets Nov 2008
Paradigm Shift Investing In Illiquid Assets Nov 2008Xavier_Timmermans
 
A Systematic Approach to Optimizing Collateral
A Systematic Approach to Optimizing CollateralA Systematic Approach to Optimizing Collateral
A Systematic Approach to Optimizing CollateralCognizant
 
What You Really Need to Know about Commercial Real Estate Underwriting
What You Really Need to Know about Commercial Real Estate UnderwritingWhat You Really Need to Know about Commercial Real Estate Underwriting
What You Really Need to Know about Commercial Real Estate UnderwritingColleen Beck-Domanico
 
Fincad hedge-accounting
Fincad hedge-accountingFincad hedge-accounting
Fincad hedge-accountingssuser689d57
 
Market Liquidity Risk
Market Liquidity RiskMarket Liquidity Risk
Market Liquidity RiskChris Chan
 
Natural Disaster Risk Transfer Solutions
Natural Disaster Risk Transfer SolutionsNatural Disaster Risk Transfer Solutions
Natural Disaster Risk Transfer SolutionsICMIF Microinsurance
 
Counterparty credit risk. general review
Counterparty credit risk. general reviewCounterparty credit risk. general review
Counterparty credit risk. general reviewRoman Kornyliuk
 
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q1 2015
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q1 2015Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q1 2015
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q1 2015Mercer Capital
 
Interest rate risk management what regulators want in 2015 7.15.2015
Interest rate risk management   what regulators want in 2015 7.15.2015Interest rate risk management   what regulators want in 2015 7.15.2015
Interest rate risk management what regulators want in 2015 7.15.2015Craig Taggart MBA
 
Bank pricing strategy 03 2013
Bank pricing strategy 03 2013Bank pricing strategy 03 2013
Bank pricing strategy 03 2013Clive Wykes
 
Distressed production lending a stochastic response
Distressed production lending   a stochastic responseDistressed production lending   a stochastic response
Distressed production lending a stochastic responseThomas J. McNulty
 
d83comm.pdf
d83comm.pdfd83comm.pdf
d83comm.pdfrazzar3
 
Forum asset liability_management
Forum asset liability_managementForum asset liability_management
Forum asset liability_managementMiguel Revilla
 
The Future of Low Risk Options in Defined Contribution Plans
The Future of Low Risk Options in Defined Contribution PlansThe Future of Low Risk Options in Defined Contribution Plans
The Future of Low Risk Options in Defined Contribution PlansMultnomah Group, Inc.
 

Similar to Ks&T Price Risk Management (20)

Paradigm Shift Investing In Illiquid Assets Nov 2008
Paradigm Shift   Investing In Illiquid Assets Nov 2008Paradigm Shift   Investing In Illiquid Assets Nov 2008
Paradigm Shift Investing In Illiquid Assets Nov 2008
 
A Systematic Approach to Optimizing Collateral
A Systematic Approach to Optimizing CollateralA Systematic Approach to Optimizing Collateral
A Systematic Approach to Optimizing Collateral
 
What You Really Need to Know about Commercial Real Estate Underwriting
What You Really Need to Know about Commercial Real Estate UnderwritingWhat You Really Need to Know about Commercial Real Estate Underwriting
What You Really Need to Know about Commercial Real Estate Underwriting
 
Fincad hedge-accounting
Fincad hedge-accountingFincad hedge-accounting
Fincad hedge-accounting
 
Market Liquidity Risk
Market Liquidity RiskMarket Liquidity Risk
Market Liquidity Risk
 
Asset Liability Management
Asset Liability ManagementAsset Liability Management
Asset Liability Management
 
Natural Disaster Risk Transfer Solutions
Natural Disaster Risk Transfer SolutionsNatural Disaster Risk Transfer Solutions
Natural Disaster Risk Transfer Solutions
 
Counterparty credit risk. general review
Counterparty credit risk. general reviewCounterparty credit risk. general review
Counterparty credit risk. general review
 
Foreigninvestment
ForeigninvestmentForeigninvestment
Foreigninvestment
 
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q1 2015
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q1 2015Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q1 2015
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q1 2015
 
Liquidity Risk Oct 4
Liquidity Risk Oct 4Liquidity Risk Oct 4
Liquidity Risk Oct 4
 
12 Tea futures-markets
12 Tea futures-markets12 Tea futures-markets
12 Tea futures-markets
 
Interest rate risk management what regulators want in 2015 7.15.2015
Interest rate risk management   what regulators want in 2015 7.15.2015Interest rate risk management   what regulators want in 2015 7.15.2015
Interest rate risk management what regulators want in 2015 7.15.2015
 
Bank pricing strategy 03 2013
Bank pricing strategy 03 2013Bank pricing strategy 03 2013
Bank pricing strategy 03 2013
 
Distressed production lending a stochastic response
Distressed production lending   a stochastic responseDistressed production lending   a stochastic response
Distressed production lending a stochastic response
 
d83comm.pdf
d83comm.pdfd83comm.pdf
d83comm.pdf
 
Forum asset liability_management
Forum asset liability_managementForum asset liability_management
Forum asset liability_management
 
The Future of Low Risk Options in Defined Contribution Plans
The Future of Low Risk Options in Defined Contribution PlansThe Future of Low Risk Options in Defined Contribution Plans
The Future of Low Risk Options in Defined Contribution Plans
 
Perspective on Active & Passive Manageemnt of Fund
Perspective on Active & Passive Manageemnt of FundPerspective on Active & Passive Manageemnt of Fund
Perspective on Active & Passive Manageemnt of Fund
 
CFA regulatory presentation
CFA regulatory presentationCFA regulatory presentation
CFA regulatory presentation
 

Ks&T Price Risk Management

  • 1. Price Risk Management ICE 1st Trading, Risk and Hedging Forum Geneva, 22 April 2009
  • 2. Outline 1. Outlook for Prices 2. Counterparty Credit Risk amidst the Credit Crunch 3. Hedging Policies & Instruments in a hyper-volatile era 4. Current Situation 5. KOCH Industries
  • 3. 1. Outlook for Prices
  • 4. Prices, a bird’s eye view in 4 phases 5 years, continuous 1st nearby ICE Brent Credit c c oli ab r pa r unch ing Go The new “asset” class Healing Mode
  • 5. An Asset Class was born • Accommodative availability of credit • Tolerance for high leverage • Light touch regulatory environment • Digitalization of trading + • Above-trend growth of consumption in Asia • Low OPEC spare capacity = overly aggressive allocation of capital in energy financial markets, some even called it a “bubble”.
  • 6. Oil Price elasticity vs. Credit Crunch • Prior to Credit Meltdown, energy prices fulfilled their “signal role” in fostering physical demand destruction. • This physical demand destruction kicked in as soon as 2007 while in parabolic phase. Timing varied from slate to slate due to wide crack product differentials. • Credit Crunch shocked the appetite for oil financial exposure, a mix of risk aversion and major de-leveraging. • The manufacturing sectors across time zones slumped in unison, furthering weakness. Petchems a perfect example.
  • 7. DOT: US Vehicle Miles Traffic
  • 8. DOT: US Vehicle Miles Traffic Drop started Early 2008
  • 9. Port of Los Angeles Traffic (in TEUs) A TEU is a 20-foot-long cargo container
  • 10. Prices, where are we today? 6 months, continuous 1st nearby ICE Brent Bottomed out? $45/bbl
  • 11. A market in need of Healing (1) • Extreme Price ranges lowers participants' pain threshold. Capital de-leveraging cuts VAR allocations in financial institutions hit by balance- sheet constraints. Shock absorbers are cautious. • Such extremes make long term industrial and infrastructure investment planning hazardous.
  • 12. A market in need of Healing (2) • Parabolic Prices triggered a political outcry aiming for a major regulatory overhaul in OTC trading. Prices receded since then, not the political will… • Ratable hedgers step back, stop and amend hedge programs, rethink Risk Management policies. • Oil markets have to mean-revert to Supply & Demand balances. In other words, speculators typically exacerbate trends, rarely contrarians to S&D.
  • 13. Prices: participant’s framework After many years building our presence by either being directly involved in various physical and paper oil businesses or by adding tangible economic value to our customers’ relationships, we believe at Koch Industries that we are in a good position to analyze and anticipate oil market trends: Invista / Flint Hill Resources / Georgia-Pacific / KS&T
  • 14. Slates, Runs and Freight • Excess refining capacity active in international trade – Jamnagar 2 not in full force yet, RFCC ramping up next month – Japan demand low, Kashiwazaki-Kariwa nuclear plant re- commissioned shortly? • Distillates plentiful despite above-average Northern hemisphere HDD season. The coldest season in 24 years in NWE • Gasoline picture much better balanced, yield switching reverse of 2008 • Naphtha weak but supply impaired • Fuel Oil comparatively healthy on tight sour and discriminatory steadiness in maintaining conversion utilization. High-Lows narrow as OPEC cuts heaviest grades. • TCE* rates depressed TCE= Time Chartered Equivalent
  • 15. 2. Counterparty Credit Risk amidst Credit Crunch
  • 16. Documentation and standards Credit support ISDA Margin Calculation Confirmations Settlement procedures 16
  • 17. Documentation – importance of standards • Most derivatives contracts have standardized features regarding pricing conventions and settlement • Protect both parties in the transaction while maintaining uniformity among portfolio of positions • International Swaps and Derivatives Association (ISDA) maintains and refines industry standards Index definition Settlement calculations Credit terms Payment instructions 17
  • 18. Credit considerations • Bilateral transactions involve credit exposure • All dealers and most large institutional users of bilateral derivatives maintain a credit evaluation capability to monitor their counterparties • Credit exposure managed primarily via stated credit thresholds either in confirmations or in ISDA Credit Support Annexes • Cash or securities can be used to guaranty performance on derivative settlement • Other clauses may allow parties to close out of transactions if sufficient evidence exists that a counterparty may default 18
  • 19. Guarantees • Frequently the contracting parties to a bilateral transaction are not publicly-rated entities • They may require more onerous credit terms, such as tighter thresholds • Alternatively, they may seek guarantees from rated parent companies 19
  • 20. Enforceability and regulation • Over-the-counter derivatives are acknowledged in most jurisdictions • They are typically not as highly regulated as listed futures markets Self-monitoring by industry groups tends to be the norm • Unlike listed futures markets, OTC derivatives may not be enforceable in all countries • There is an added level of exposure to counterparties in these countries who may decide not to perform on a derivative that is out-of-the-money 20
  • 21. Rebalancing of Exchanges and OTC • IPE/ICE now offering clearing of OTC contracts • Fulfills necessary role of credit intermediation • Credit risk borne by clearing members • Enables price risk managers to hedge risks customized to their needs while not taking on counterparty credit risk • Cost is upfront margin and subsequent margining, which may not be necessary in bilateral OTC contracts
  • 22. 3. Hedging Policies & Instruments in hyper-volatile era
  • 23. Classification of hedging programs Ratable Opportunistic No Yes Discretionary Yes Constrained Non-discretionary 23
  • 24. Discretionary vs. nondiscretionary • A small number of hedgers take a discretionary approach Market timing, based on knowledge gained from other participants and dealers Role of research, consulting agreements • The vast majority of hedgers are less discretionary Reflects their admission of not having superior market knowledge Price takers Trend followers 24
  • 25. Discretionary programs • Discretionary hedging programs may be extremely flexible • Buying and selling hedges based upon market point of view gathered internally or with input from outsiders • But difficult to explain to shareholders • Also may not dampen volatility of physical exposure as traders may choose not to be hedged or even to increase exposure 25
  • 26. Nondiscretionary: two main types • Constant-volume, or ratable-volume Involves defined-volume, defined-frequency accumulation of hedges regardless of price Can involve any particular structure (swaps, collars, caps) • Structured opportunistic Accumulates hedges according to price levels May also dictate structures employed at any given price level 26
  • 27. Constant-volume programs • Example: buying 1-year forward once per quarter in volumes corresponding to 10% of total consumption – After four quarters, hedge volume equal to 40% of that period’s consumption; 30% of 2nd quarter’s consumption; 20% of 3rd quarter’s consumption; and 10% of 4th quarter’s consumption – Total volume of hedge position equal to full quarter’s consumption – Price appreciation/depreciation should affect hedge book and physical exposure similarly, though not perfectly given “beta” effect – Given the dollar-weight averaging of entry prices, the value of the hedge will have somewhat dampened volatility vs. entry levels 27 ISDA® ISDA®
  • 28. Structured Opportunistic programs • May be as rigidly applied as constant-volume programs (i.e. without discretion) • But rigid in a very different way – via statistical analysis of historical prices • Hedges are entered according to how forward prices relate to historical averages • Hedge volumes grow as prices drop, and vice-versa • Choice of instruments may also be a function of price levels
  • 29. Structured Opportunistic pros/cons • Benefit from lower volatility of hedge value vs. ratable programs All other things equal, the size of a S.O. hedge position is equal to or lesser than the size of a ratable hedge position • Effective as long as market behaves according to historical price distribution • Downside: leave consumer un-hedged in persistently strong market • Alternatively, can saddle hedge book length in persistently weak market • Tends not to benefit from term structure as ratable programs do • Indeed, structured opportunistic programs generally hurt by term structure (buying in contango market; exposed in backward market)
  • 30. Price Dive and Consumer Hedging • Regardless of the robustness of your Monte-Carlo risk engine, it is unlikely that the $147 through $35 move constituted a reasonable or even likely price scenario. • Consumers hedgers got scattered in all quadrants: From – Reactive and cutting losses relatively early. All the way to – Did not do anything at all. in • But all are revising their hedge program parameters, particular how recursive the decision-making process should become.
  • 31. Choice of instruments • Typical: Buy swaps at relatively low prices 1.5+ standard deviations below long-term averages Probability of hedge losing value is relatively low Potential mark-to-market costs (margin) lowest • Enter collars or ceilings at median prices Provides more flexibility on MTM should market decline from average levels • Buy caps or do nothing at higher prices Potential for hedge losses proportionately greater
  • 32. Rules of thumb on allocation of instruments • One simple rule of thumb is to hedge one-third of exposure via swaps; another third via collars; and leave the balance unhedged • Justified by its risk profile as halfway between hedged and unhedged • In practice, this is just a point on the continuum; there may be solid reasons to choose alternative points • For structured opportunistic, the decision regarding mix of hedges may be a function of forward prices
  • 33. Views on structures • New structures marketed as offering greater value than existing products There is no free lunch, please do not fall for smoke & mirrors! Any structure can be offered more cheaply if the buyer is willing to maintain or increase exposure Always calculate your leverage ex-ante! TARS horror stories… • A derivatives dealer can develop risk-management tools for any specific exposures via existing or novel structures Need to establish client objectives Relative importance of net cash cost Predictability vs. buying low
  • 34. Example #4: storage hedge collar • Strip of European-style zero-cost collars (floor vs. cap) on crude oil term structure to protect against severe backwardation and/or benefit from contango shape. • Inventory hedges are typically rolling short futures positions • The storage hedge collar provides protection against backwardation, not necessarily spike in outright price • Another example of a spread option 34
  • 36. We don’t do Price forecasts • But it appears that once excess physical inventory is eventually mopped up, all necessary conditions are in place for the resumption of a bullish bias: – Vastly expansionary monetary stance in key Central Banks impacts the differed part of the forward curves. – E&P, Refining and Downstream investment in slowdown mode. – The return of speculators to Oil, the “macro trade” is alive and well. Inflation hedge, diversification from the $, lack of alternatives have led to higher open interest and volumes on ICE.
  • 37. A wall of cash…
  • 39. US & Canada Rig Count
  • 40. Oil Supply adjusting to crisis • With lower price environment, some Projects schedules delayed, some scrapped. – In non-OPEC, IEA estimates 1 mm bpd for 2009/10 • Steeper decline rates from mature fields as maintenance spending is trimmed. • Those factors impact with a lag even in case the market rebounds, some are non-reversible. [sticky factor]
  • 41. What matters today? (1) • Do we still have too much oil supplied and what is OPEC doing about it? – Inventories plentiful, have been rising for 7 months. – Still building but not as fast. – Contango shape allows storage balancing mechanism. • OPEC in catch-up mode for cuts while demand revisions pace quicken – OPEC tightening compliance and will persist – Refiners adjusting to low-run world as refining in excess capacity.
  • 42. What matters today? (2) • The macro-trade is alive and kicking. Risk/reward is alluring. How much downside left?... • Speculative positions (OI & Volumes) on the oil exchanges have increased again since a low in October 2008 • A recent survey of 1,000 hedge funds by Deutsche Bank indicates that a quarter of $294 billion held in cash should find its way into highly favored “global macro strategy” within 6 months.
  • 43. What matters today? (3) • Asia seems to be leading the way on bottoming out process. Ethylene crackers now in full runs again in Korea, Taiwan, etc… • How sustainable is China as the new world growth leader? How reliable is domestic demand for the medium-term? Besides infrastructure spending…
  • 44. Recent regulatory developments • Pension and hedge funds in the crosshair last July • Now very much a CDS story as oil receded. • Last February, anti-speculation measures specific to commodities markets passed House but vetoed • On the agenda of the new administration but unclear which House Committee is taking the lead between Financial Services Committee and Energy and Commerce Committee. • Unregulated OTC trading defended by financial institutions. • OTC Clearing trend versus speculative position limits • London loophole, what London loophole?
  • 45. Prices: a word about Natural Gas • Natural Gas world in Europe still has a split personality: NBP in the UK and GO/FO formulas on the continent due to long-term supply contracts pricing mechanism. • NBP is still the dominant hub in NWE Europe as competition restriction prevent the other continental hubs from taking their rightful place - still influenced by oil prices in the forward season but will break below European Benchmark Prices and surrender to UK Supply / Demand in short-term. • Our NBP Point of View: rather bearish for summer given supply situation, initially we think winter prices will be supported by utility hedging and lack of storage. • European Benchmark Price (a rough estimate of the oil index formula prices - e.g. German average import price)
  • 47. Koch Industries - Overview • Koch Industries is among the world's largest private companies. Founded in 1940, it is owned and managed by Charles and David Koch. • Koch has interests spanning involvement in commodities (metals, petroleum, minerals etc.) and securities trading through to owning and operating refining and manufacturing facilities. • As evidence of its financial strength Koch Resources, LLC maintains a long-term S&P A+ and Moody’s Aa3 credit rating. • Trading operations located in London, Geneva, Singapore, Houston, New York, Wichita, Kansas (Corporate Headquarters), Rotterdam and Mumbai. • Information: www.kochind.com www.ksandt.com www.kochmetals.com http:/derivatives.kochind.com www.kochsteel.com www.kochbullion.com
  • 48. Koch Business Groups Koch Industries owns a diverse group of companies that exercise capabilities in trading, operations excellence and investments on a global scale in core industries that include: trading; petroleum; asphalt; natural gas; gas liquids; chemicals ;metals, plastics and fibers; chemical technology equipment; minerals; fertilizers; ranching; pipelines; pulp; securities and finance, as well as a range of other ventures and investments. Some of the principal companies include: Koch Financial Corporation Koch Supply & Trading, LP Koch Materials Company Koch Supply & Trading, Sàrl Koch Chemical Technology Group Koch Metals Trading Limited KoSa Flint Hills Resources INVISTA Koch Mineral Services, LLC Georgia-Pacific Koch Capital Markets Koch Ventures
  • 49. Koch Supply & Trading - Overview • Koch Supply & Trading, LP (KS&T) is a global supply, marketing, trading and risk management group conducting business in crude oil, refined petroleum products, petrochemical feedstock, freight, base metals, steel and other commodities. • Today KS&T is among the world’s top five crude oil traders and actively trades about 50 types of crude oil around the world. • KS&T trades in physical commodity markets and is also an active market-maker of innovative risk management solutions for a wide range of customers, including several large oil producers • KS&T emphasizes a disciplined, strategic approach, with a focus on customer needs, market analysis and risk-management capabilities. • Information: www.ksandt.com http:/derivatives.kochind.com
  • 50. Koch Supply & Trading: Activities • Worldwide trading and risk management activities in crude oil, refined petroleum products, metals and other commodities: – Global Crude Oil (trading some 50 different types of crude) – Light Products and Chemicals – Natural gas and gas liquids – Heavy Products (e.g. industrial and bunker fuels) – Base Metals (Al, Cu, Zn, Pb, Ni, Sn and brass) incl. online trading – Steel (hot and cold rolled coils) • For additional information see: www.kochmetals.com
  • 51. Koch Supply & Trading – Contacts Structured Products New York Ilia Bouchouev (212) 759-8146 ilia.bouchouev@kochind.com Nicholas Dazzo (212) 319-4895 nicholas.dazzo@kochind.com Patrick Melia (212) 759-8123 patrick.melia@kochind.com Adam Glassman (212) 355-3417 adam.glassman@kochind.com Joseph Master (212) 644-0286 joe.master@kochind.com Ashutosh Tayshete (212) 319-5163 ashutosh.tayshete@kochind.com Wichita Arian Fouquet (316) 828-3888 arian.fouquet@kochind.com Brett Johnson (316) 828-8884 brett.johnson@kochind.com Wes Osbourn (316) 828-5882 wes.osbourn@kochind.com Brett Unrein (316) 828-7178 brett.unrein@kochind.com Geneva Olivier Raevel 41-22-737-4229 olivier.raevel@kochind.com George Christie 41-22-737-4225 george.christie@kochind.com Christian Jestin 41-22-737-4221 christian.jestin@kochind.com Brian Carpani 41-22-737-4244 brian.carpani@kochind.com Singapore Dennis Ho 65-6831-6560 dennis.ho@kochind.com Mumbai S. Ramani 91-22-2403-8437 ramanis@kochind.com
  • 52. Disclaimer Note: These forecasts/data/analysis are based upon a number of estimates and assumptions. Actual results may vary significantly. No assurance or guarantee is made that these forecasts will be achieved. Please be advised that the analysis, examples and prices provided above are for illustrative purposes only. Although the information has been compiled by Koch from sources believed to be reliable, these financial forecasts are based upon a number of estimates and assumptions that are subject to significant business, economic, regulatory and competitive uncertainties. Forecasts are inherently subjective and speculative, and actual results and subsequent forecasts may vary significantly from these forecasts. Koch makes no representation, warranty or guarantee as to, and shall not be responsible for the accuracy or completeness of, this information and has no obligation to update any information provided to you. Koch shall not be liable to recipient or any third party for its use of or reliance on the information contained herein. Koch is not acting as your agent or advisor and you are encouraged to seek independent advice, as necessary, prior to entering into any transaction. This information may not be reproduced, distributed or published by any recipient for any purpose.