VW first-quarter profits driven by hedging, not cars
Gains in commodity hedging positions, mainly nickel and aluminium, will add €3.5bn to earnings, company says
Volkswagen’s commodity trading profits are outshining car-making earnings after the company’s nickel hedging position surged in value after last month’s historic short squeeze.
Gains in commodity hedging positions will add €3.5bn ($3.8bn) to first-quarter earnings, Europe’s biggest carmaker said on Thursday. Total operating profit before special items is expected to almost double in the period to €8.5bn, with a strong operational performance also driving returns.
VW shares closed 1.73% lower in Frankfurt, taking the decline since the start of the year to about 17%.
The company has one of the largest long positions in nickel on the London Metal Exchange, where a huge squeeze in March stunned traders before the exchange stepped in. Nickel, important for making electric-vehicle batteries, surged 55% during the first quarter, as concerns over supply also fanned gains.
VW and other major commodities consumers use hedging instruments to shield against often volatile price moves on raw materials they depend on. Russia’s invasion of Ukraine is exacerbating an already tight supply of a range of inputs such as nickel and aluminium as the global economy recovers after the pandemic. Sanctions against Russia, a major source of commodities, are further squeezing supplies.
The illustrative mark-to-market gain on VW’s nickel hedges disclosed in its annual report would have been about €1.5bn, according to Bloomberg calculations. VW’s aluminium position would have gained about €500m, having been valued at €2.5bn at the start of the year. VW also has forward contracts and swaps for copper and coal, alongside price protection on platinum, palladium and rhodium.
The carmaker, hit by a range of component shortages led by semiconductors, also warned of renewed pressure on already fragile supply lines. It halted several plants in Europe after the start of the war when manufacturers of wire harnesses in Ukraine were disrupted.
The company’s global deliveries slumped 31.4% last month to end a difficult sales quarter. VW said net cash flow of its automotive division is about €1.5bn.
There is “still a risk that further developments in the Ukraine war will have a negative impact,” Volkswagen said. “This may also result from bottlenecks in the supply chain.”
More stories like this are available on bloomberg.com
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.