Hope the below enlightens some on how Hedging caused the Q1 22' PAT we have seen for Hengyuan:
How hedging for refining margin causes derivative loss / gain:
NOTES:
A) Hedging is done monthly (every month) with forward Futures pricing and the balance closed on the following month:
B) Hedging Contract size for both crude & refined oil is its 1 month cost & revenue.
Key takeaway from above:
- When refined oil price rise faster than crude you get derivative losses (Q1) and when crude catches up a little, you get hedging gain as can be seen in Q2
- Once price stabilizes, we can see the Net Profit will match the Gross Profit as can be seen in Q3 22'.
- In the long run, all the gross margin not captured due to hedging will eventually be captured when price returns to the original pricing as can be seen for the year total figures..