Commodity exposures and risk management in the Swedish construction sector : A comparison between Skanska, NCC, Peab and JM

Abstract: Today’s construction industry consists of fierce competition and low margins, resulting in companies focusing on cost risk awareness. The aim of this thesis was to investigate how construction companies manage their market risks, with a special focus on commodity risks. In addition, the thesis purpose was also to explore the composition of commodity exposures within a few selected construction companies. A financial index of commodity exposures was generated out of Statistiska Centralbyråns’ totala faktorprisindex for multi-residence housing projects. Furthermore, a fictional case was combined to test the risk management effect of the financial index, using Sweden’s four largest construction companies’ commodity exposures. In summary, the construction companies were all aware of their commodity exposures although most of them did not actively manage them or know their exposures extent. Moreover, financial risk management of commodities is not easy or straightforward, resulting in difficulties in choosing the right management tool. Therefore, this thesis created and illustrated how a financial index could be used as a way to stabilize the profitability in construction projects.