Metal price

Potential impact

Umicore’s earnings are exposed to risks relating to the prices of the metals which we process or recycle. These risks relate mainly to the impact that metal prices have on the surplus metals recovered from materials supplied for recycling, and concern platinum, palladium, rhodium, gold, silver and a wide range of base and specialty metals. For some metals quoted on futures markets, Umicore hedges a proportion of its forward metal exposure to cover part of the future price risks.

Umicore also faces transactional price risks on metals. The majority of its metal-based transactions use global metal market references. If the underlying metal price were constant, the price Umicore pays for the metal contained in the raw materials purchased would be transferred to the customer as part of the price charged for the product. However, because of the lapse of time between the conversion of purchased raw materials into products and the sale of products, the volatility in the reference metal price creates differences between the price paid for the contained metal and the price received. Accordingly, there is a transactional exposure to any fluctuations in price between the time raw materials are purchased (when the metal is “priced in”) and the time the products are sold (when the metal is “priced out”). The Group’s policy is to hedge the transactional risk to the maximum extent possible, primarily through forward contracts.

The accelerating growth in battery materials is rapidly increasing the exposure to specific related metals such as cobalt or nickel.
Increasing volumes, the vulnerability to the associated price volatility and in the case of certain metals such as cobalt the absence of a liquid paper forward market result in increased metal risks.

For more information on the structural risk and on the transactional and inventory risk related to the metal prices, see Statements, note F3.

Change in context

Prices for precious metals strengthened in 2018. Prices for gold, palladium and rhodium increased, while silver and platinum prices faced a volatile environment in which gains were often completely offset by subsequent losses, leaving a small increase over the full year cycle.

The continued rapid growth in battery materials substantially increased the global demand and use of specific metals such as cobalt or nickel. In the case of cobalt, higher demand and perceived supply scarcity resulted in a significant market price hike in the first six months. Newly commissioned supply and a more moderate global demand expectation resulted in a price correction over the second half of the year. Umicore was thus confronted with significant cobalt price volatility in 2018.

Measures taken by umicore

Over the course of 2018, Umicore entered into forward contracts securing a portion of its structural price exposure for certain precious metals and base metals in 2019 and 2020, thereby increasing earnings predictability.

For cobalt, Umicore’s transactional hedging policy aims to match to a maximum extent the pricing in and pricing out of the contracted metal. Such physical back-to-back hedging in 2018 allowed to manage transactional risks related to cobalt in a volatile market.