JSE adds diesel hedge board to mitigate price movements
The JSE has introduced the Diesel Hedge Futures and Options to its range of commodity derivatives in an effort to allow investors to protect themselves against movements in the local diesel price.
“The new contracts provide investors with a hedge against movements in the price of diesel refined in Europe, but this price also plays a big role in what we pay for diesel in South Africa,” said JSE commodity derivatives director Chris Sturgess in a statement on Thursday.
The contracts, which would be traded in rand per litre and cash settled, provided a hedge against movements in the local pump price of diesel through following the price of European Gasoil futures, as traded on the New York Mercantile Exchange.
European Gasoil is a proxy for the basket of international energy prices used to calculate the South African diesel price.
“The price of the diesel contracts will be calculated based on the average exchange rate and average European Gasoil futures in the month before the contract expires. This is known as the reset month and the contract will not trade during this month,” explained BVG energy specialist André Greeff.
“The month in which the contract expires will be known as the pump month and the contract will expire at the beginning of this month.”
One contract represented 5 000 l of diesel, which meant businesses using higher volumes of diesel each month could meaningfully leverage the contract.
Sturgess concluded that the contracts could assist farmers and businesses to protect themselves against volatility in the diesel price, which had a great influence on input costs, and gave them greater certainty in managing their costs.
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