Commodity risk

Valmet is exposed to risk in variations of the prices of raw materials and of supplies including energy. Subsidiaries have identified their commodity price hedging needs and hedges have been executed through the Treasury using approved counterparties and instruments. For commodity risks separate overall hedging limits are defined and approved. Hedging is done on a rolling basis with a declining hedging level over time.

Electricity exposure in the Nordic subsidiaries has been hedged with electricity forwards and fixed price physical contracts, which are designated as hedges of highly probable future electricity purchases. Hedging is focused on the estimated energy consumption for the next two-year period with some contracts extended to approximately five years. The execution of electricity hedging has been outsourced to an external broker. As at December 31, 2017 Valmet had outstanding electricity forwards amounting to 159 GWh (121 GWh) and 206 GWh (228 GWh) under fixed price purchase agreements.

To reduce its exposure to the volatility caused by the surcharge for certain metal alloys (Alloy Adjustment Factor) comprised in the price of stainless steel charged by its suppliers, Valmet has entered into average-price swap agreements for nickel. The Alloy Adjustment factor is based on monthly average-prices of its components of which nickel is the most significant. As at December 31, 2017 Valmet had outstanding average-price swap agreements for nickel amounting to 18 metric tons (0 metric tons).

The following table presenting the sensitivity analysis of the commodity prices based on financial instruments, comprises the net aggregate amount of commodities bought through forward contracts and swaps but excludes the anticipated future consumption of raw materials and electricity.
A 10 percent change upwards or downwards in commodity prices would have the following effects, net of taxes:

Eur million 2018 2017 2016
Electricity - effect in profit / loss +/- 0.0 +/-0.1 +/-0.1
Electricity - effect in equity +/- 0.5 +/-0.2 +/-0.2
Nickel - effect in profit / loss - +/- 0.0  


Cash flow hedge accounting has been applied for electricity forward contracts. The effective portion of derivatives is recognized in ‘Equity’ and the ineffective portion is recognized through profit or loss. Hedge accounting is not applied to nickel agreements and the change in the fair value is recorded through profit or loss.

Updated; Mar 4, 2019