South Korea hedges its bets

Corporate hedging of energy and commodity price risk in South Korea used to be the purview of a handful of large conglomerates. But a recent change in regulation has opened up the door to a whole new tier of potential hedgers. Local banks are now teaming up with international investment banks to tap into this new market. Oliver Holtaway reports

Last May, as part of a package of banking deregulation and integration of derivatives law, it became possible for South Korean banks to trade in commodity derivatives for the first time. Local banks were already able to provide corporate hedging services for FX and interest rate exposure, but as is frequently the case, commodity derivatives had been treated differently from other derivatives.

The Korean economy has a significant exposure to global commodity prices. Heavy industry is an important