Case Analysis of the Hedging Failure of Metallgesellschaft

Chuhao Huang

doi:10.54254/2754-1169/2025.LD28205

Advances in Economics, Management and Political SciencesOpen access

Case Analysis of the Hedging Failure of Metallgesellschaft

Research Article

Open Access

Case Analysis of the Hedging Failure of Metallgesellschaft

Chuhao Huang ^1*

¹ Shandong University of Finance and Economics

^*Corresponding author: huangchuhao999@163.com

Published on 22 October 2025

AEMPS Vol.230

ISSN (Print): 2754-1177

ISSN (Online): 2754-1169

ISBN (Print): 978-1-80590-453-3

ISBN (Online): 978-1-80590-454-0

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Abstract

In 1993, Metallgesellschaft Refining and Marketing (MGRM), the U.S. subsidiary of Metallgesellschaft AG (MG)—a century-old industrial group—incurred huge losses due to the failure of its hedging strategy. This not only caused a massive liquidity gap for MGRM itself but also pushed the parent company MG to the brink of bankruptcy, making it a landmark negative case in corporate derivative risk management in global financial history. At that time, as a diversified European industrial giant, MG had profound influence in the commodity trading market, and its crisis once triggered concerns about systemic risks. This paper conducts an in-depth analysis of the hedging failure case of Metallgesellschaft (MG) in 1993. Focusing on the core of MG’s hedging failure incident, this paper centers on the operational details and risk transmission path of MGRM, and deeply explores the root causes of the failure. Through a comprehensive analysis of factors such as the rolling hedging strategy, basis risk, financial risk, and market changes, the fundamental reasons for MG’s hedging failure are revealed. The study finds that the essence of MG’s failure lies in the "mismatch between static risk assumptions and dynamic market changes". This paper aims to provide a reference for enterprises in hedging practice and help avoid similar risk incidents. Its lessons have important reference value for enterprises to optimize the use of derivatives and improve risk management systems.

Keywords:

Hedging, Metallgesellschaft, Basis Risk, Financial Risk

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References

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