Market risk

Market risk management

Market risk is understood as the possible negative impact on the Company's results, stemming from changes in the market prices of commodities, exchange rates and interest rates, as well as the prices of debt securities, participation units in investment funds and the share prices of publically traded companies.

The Management Board is responsible for market risk management at KGHM Polska Miedź S.A. and for adherence to policy in this regard. The main body involved in realising the market risk management process is the Market Risk Committee, which makes recommendations to the Management Board in this area. 

The Company actively manages the market risk to which it is exposed.  In accordance with the applied policy, the goals of the market risk management process are:

  • to reduce volatility in the financial results,
  • to increase the probability of achieving budget assumptions,
  • to decrease the probability of the loss of liquidity,
  • to keep the Group in a good financial condition, and
  • to support the process of accomplishing the strategy and of making decisions with respect to investments, taking into consideration the sources of financing these investments.

All of the goals of market risk management should be considered as a whole, with their realisation being determined mainly by the internal situation and market conditions.

The primary technique for market risk management at KGHM Polska Miedź S.A. is the use of hedging strategies involving derivatives. Apart from this, natural hedging is also used.

The means adopted most often are the instruments securing financial flows that meet the effectiveness criteria as provided for in the hedge accounting policies. Effectiveness of the securing financial instruments adopted by the Parent Entity in the accounting period is monitored and assessed on current basis.

The Parent Entity quantifies the market risk’s size that it is exposed to, and attempts to express it with a compliant and joint measure. The developed simulations (among others, analyses of scenarios, stress-testing and backtesting), and the calculated risk measures support the market risk management process in the Capital Group. The adopted risk measurements are mainly based on mathematical and statistical modeling deriving from the historical and current market data on risk factors, and they consider the current exposure to market risk (among others EaR).

 

Detailed information with respect to market risk management is found in:

Consolidated financial statements for 2016 (page 41) 

Report on the Group's activities for 2016 (page 61)