Every processor, whether upstream or down, is a manufacturing added-value enterprise wrapped around a commodity trading business.
- Structure should reflect fundamental functional differences. Manufacturing looks nothing like commodity trading and its objectives are completely different so why keep them lumped together? The key to managing the risks relating to commodity exposure is to run sub-business risk activities independent of each other – metal pricing distinct from product mark-ups. The division will prevent distortions in reporting and expose performance realities, which will enable confident action taking.
- Structure should isolate distinct risks. While often interwoven in the same physical transaction, price risk must be separated from other risks like foreign exchange risk. Separation will facilitate their different management needs and avoid a dense tangle that defies explanation.