Exporters still not keen on taking hedging risks

Uncertainties in the export market have kept the exporters from taking advantage of the hedging facility offered by banks with only the bigger export companies taking the risks of hedging.

Furniture exporter Michael Basubas said it is difficult for small to medium export companies to hedge, as the market is very volatile and orders even in the next few months are not defined.

Hedging is not popular for the smaller to medium exporters because these companies are supposed to sell their forward shipment to the banks in a fix foreign exchange rates, Basubas said the problem is orders for shipments these days are very uncertain.

“We don’t even know the value of our forward shipment, we can’t determine the volume of dollars we have to hedge,” Basubas said.

Usually, a middle-size export company, especially furniture could deal an average of US$600 million to US$1 million worth of orders for a year. This time that the market is weak especially in the United States most exporters can not estimate the value of orders even in the shorter period of time.

Also, Basubas said some exporters are not aware of the benefits offered by the hedging facility, which is now becoming popular mostly to the big export players.

In Cebu, he said most exporters are not receptive of the hedging offers, although, it protects losses from abrupt foreign exchange rates.

One hedges the currency risk by contracting to sell foreign currency in the future, at the current exchange rate. Contracts are typically for periods of up to one year for U.S. Dollars.

Financial analysts have been encouraging exporters to take advantage of hedging, in order to avoid further losses, because of unpredictable foreign exchange in the country.

Also, financial expert Sergio G. Edeza earlier warned exporters that in the long term chart, the peso may climb further to the upper ladder even below P40 to the US dollar in two years.

Edeza, who is the former Treasurer of the Philippines, said that the continuous weakening of the US economy, due to balance of trade problem, deficit, and others, would bring about a weaker dollar currency in the future.

 This, and other good projections for peso value, has brought about severe panic to the export sector, as P40 to the one dollar exchange rate is already considered as a “killer” rate for the industry, while it has already poisoned by the P46 to P43 to one dollar situation.

In the middle of this year, Finance Secretary Margarito Teves announced that government-owned Development Bank of the Philippines (DBP) will be drawing up mechanisms that will guide exporters the use of the hedging facility.

For small to medium export players, Basubas said hedging is still a far-fetched solution, because of worsening world market uncertainties.