Risk exposure at steel grade level within Sandvik Materials Technology
Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Sandvik Materials Technology (SMT) niches are high technology stainless steels, special alloy materials and advanced value-added products, areas were SMT is or wants to be a world leading producer. Furthermore similarly to the entire group, SMT is divided in product areas, namely: Tube, Strip, Wire, Kanthal and Process Systems. The raw material share of the products cost structure varies from a few percent to as much as half of the cost, due to the reefing grade. Considering the recent step raise in the alloy prices the risk within this market is of great importance to SMT.
In the thesis the metal risk (the price risk of metal prices) management at SMT in particular has been discussed. The question however it is possible to account for the metal risks, at a steel grade level with the Value at Risk – model has been tested. The study will only cover four different steel grades and only the amount of the alloys Nickel, Molybdenum, Chromium and Iron will be used to classify the steel grades and consequently the steel grade risk-level.
An outline for a general model has been defined, where it is possible to account for risks at a product level within the division Primary Product (SV).
Considering the step raise in the material costs of SV’s products it is definitely necessary to calculate/measure/manage the metal risk. The rather simple mathematical model that is presented in this thesis needs to be enlarged but it clearly shows that it would be possible to number the metal risk of SV. In the price model the conclusion should be that the preferable price model follows from the slope of the alloy prices. The two cases presented in the analysis shows the direct connection between the profits or losses of the AS-model/purchase price and the derivative of the nickel price.
The conclusion is that VaR should be used to divide the products in safe, dangerous and extremely dangerous products according to the metal prices.
Place, publisher, year, edition, pages
Uppsala: Företagsekonomiska institutionen , 2007. , 57 p.
IdentifiersURN: urn:nbn:se:uu:diva-8151OAI: oai:DiVA.org:uu-8151DiVA: diva2:131621
Joachimsson, Robert, Universitetslektor