MERCHANDISER
New Era in Global Commodity Trading
IN A FIRST-TIME study, Trading Up – A look at some current issues facing energy and commodities traders, business advisory firm Deloitte has analysed the current issues in global energy and commodities trading. The traders’ role in energy and commodities is
changing rapidly, the report confirms, with physical trading having entered a new era of sophistication and scale. Deloitte in Switzerland has analysed the current issues and trends of one of the most important global and Swiss trading sectors and their findings are based on the results of interviews with Deloitte partners from around the world as well as discussions with leaders from the energy and commodities sector.
Changing global economic conditions are giving
rise to exciting new opportunities and challenges. “International trading houses are – whether in oil, metals or soft commodities – extending their reach and scope,” the report confirms.
The Changing Business Model The commodity trading sector continues to rapidly
transform as more and more trading houses move towards a more integrated business model. “In recent years, acquisitions of assets, whether producing, logistics and storage or downstream by trading companies, have continued to proliferate, giving traders exposure up and down the value chain,” the report confirms. This expansion, in essence, will extend their control over supply lines and increase trading options. “Compared with a pure trading model where a
company’s capital is essentially tied up in short term positions, moving into assets provides optionality but requires a longer-term commitment of capital with associated implications for the financing strategy for the business as a whole,” explains Chris Jones, Deloitte leader for Energy and Resources and main report author. This need for higher and often more expensive
longer-term capital has led to innovation as companies explore new ways of funding both their trading and asset-based businesses. The vogue for buying assets is therfore forcing trading houses (mostly privately owned) to find innovative ways of raising capital for the longer- term in a tight credit environment as banks cut lending, the report says. Some have already begun adapting to these challenges such as Louis Dreyfus, which issued its first bond last year, and Mercuria which plans to sell a strategic stake.
22 March 2013 “With the credit tap turned down, evaluating and
creatively employing the different funding tools available is critical,” Jones confirms. Moreover, “If, as result of acquisitions, companies start to look and act more and more like integrated energy companies and big miners, is there a risk that the entrepreneurs who drive the trading business will chafe on their diminished roles?” That could add-up to departures to new hedge funds and other trading shops.
Risk, Regulation & Compliance Challenges Risk management is a core competence for any
trading organisation. Nonetheless, the changing financing and funding landscape is likely to bring
The vogue for buying assets is forcing trading houses to find innovative ways of raising capital for the longer-term in a tight credit environment
further compliance requirements. Additionally, continued and pending regulation (such as position reporting and clearing) and/or the expansion into emerging markets (with issues such as resource
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