Understanding OTC Cement Swaps: Fix Your Price Without Changing Your Contract
You don’t need to renegotiate your supply contract to gain price certainty. A cement swap lets you fix your price and protect your margin, without touching your physical deal.
1 Feb 2025
What Is a Cement Swap?
A cement swap is a financial agreement that runs alongside your physical supply contract. It allows two parties to exchange the difference between a fixed price and a floating index, without affecting the physical delivery of cement.
It’s called a swap because each side takes a different price view:
One agrees to a fixed price
The other remains floating with the index (e.g. S&P Global FOB Turkey)
At the end of each period, the difference between the fixed price and the average index price is settled in cash, based on an agreed volume.
What Makes Up a Swap Agreement?
Each cement swap includes:
Volume – the monthly quantity covered by the swap
Duration – how long the agreement runs (e.g. 3–12 months)
(The industry term is “tenor” - but think of it as your timeline)
Benchmark Index – such as Platts FOB Turkey
Fixed Price – the level agreed to hedge against the index
It’s a separate agreement that doesn’t interfere with your supply contract, but helps you manage price risk in the background.
Why Index Linkage Matters
For a swap to work, your physical contract needs to use the same index as the swap. This keeps the exposure consistent and ensures the hedge is effective.
For example:
Physical: “Index price + $18 for freight and handling”
Swap: Fixed at $65/mt based on the same index
→ The swap then protects your price exposure to that benchmark, without changing your contract or supplier.
How Swaps Create Price Certainty
Swaps don’t prevent price movement, they neutralise its impact.
Let’s say the buyer is the fixed party at $65/mt:
If the index rises, they pay more on physical, but receive the difference in the swap
If the index falls, they pay less on physical, and pay the difference in the swap
In both cases, their total spend stays at the fixed level.
For the seller, it’s the same, in reverse. The swap balances out market moves and brings predictability to both sides.
Swap + Physical — Cash Flow Example
Month | Index ($/mt) | Fixed Price | Volume (mt) | Physical Payment | Swap Cashflow | Net Buyer Cost | Net Seller Revenue |
|---|---|---|---|---|---|---|---|
Jan | $60 | $65 | 5,000 | $300,000 | Pay $25,000 | $325,000 | $325,000 |
Feb | $67 | $65 | 5,000 | $335,000 | Receive $10,000 | $325,000 | $325,000 |
Mar | $66 | $65 | 4,000 | $264,000 | Receive $4,000 | $260,000 | $260,000 |
Apr | $70 | $65 | 6,000 | $420,000 | Receive $30,000 | $390,000 | $390,000 |
May | $64 | $65 | 5,000 | $320,000 | Pay $5,000 | $325,000 | $325,000 |
Jun | $62 | $65 | 5,000 | $310,000 | Pay $15,000 | $325,000 | $325,000 |
Why Buyers and Sellers Use Swaps
Buyers
Lock in visibility and price certainty
Protect margins on long-term contracts
Make confident commercial decisions
Sellers
Secure revenue even if the index falls
Offer competitive pricing while managing risk
Build stronger, more flexible customer relationships
Swaps aren’t about speculation, they’re about stability.
Final Word
At LMX, we help buyers and sellers structure cement swaps that follow the same index as their physical deals.
You don’t need to change your contract, you just need a smarter way to manage price.