Quotational Period: the time period during which the average price is established — typically a calendar month. This price is then used to calculate the value of payable metals contained in base metal concentrates such as copper, gold, lead, silver and zinc.

The calendar month that is used to calculate the Quotation Period price varies depending on the quality, quantity and logistical requirements of the concentrates, and can also be determined by the business strategy of the buyer.

Physical hedging: buying or selling physical material to match the pricing of future production and sales.

Types of Buyers

Buyers can either be a processor of the concentrates such as a smelter and refinery, or a financial intermediary such as traders.

Using the Quotational Period for profit

The business strategy of both types can often be the same but traders have an additional business strategy available to them. When there is a quotational period option in the buyer’s favour this can be leveraged to maximise the buyer’s profit with negligible price exposure risk.

Using Quotational Period for Price Risk Management

Using a known quotational period, many smelters, refiners and traders physically hedge against this price exposure risk by matching the quotational period for raw materials such as concentrates with the quotational period for high grade or refined metal for a smelter. If the buyer, smelter or refinery does not physically hedge against the price exposure risk, they have the option of either hedging using financial instruments or accepting the risk through speculation.

Use a future quotational period for pricing helps to reduce price risk for both types of buyers during the time it takes to:

  1. smelt and refine the concentrates before selling the high grade or refined metal
  2. sell the concentrates to a buyer — such as a smelter or a refinery