Contemporary Legal Issues Affecting Commodity Traders
The global commodity industry is in a period of rapid and profound change: in the way in which the market operates; in its coverage (both geographically and across products); and in the dynamics of the commodity supply chain. Current commodity trading conditions, therefore, mandate that companies scrutinise their existing internal and external legal systems and capabilities.
THE REASONS WHY commodity markets have been propelled into the mainstream AND as a financial investment class are well documented. Just as importantly, the latest demand-driven cycle for commodities came at the same time as supply was stagnating. Today’s commodity markets dictate that
companies develop multi-commodity expertise to accurately hedge activities, while simultaneously crossing into neighbouring markets. The risks inherent in this expansion are further exacerbated by initiatives intent on enforcing stricter regulatory and environmental compliance. As a consequence, great opportunities exist for companies that adapt
affecting everyone throughout the value chain – whether it be the major global trading houses, smaller regional and national players, or individual producers and consumers of commodity products. International trading houses – in energy, metals or agricultural/soft commodities – are extending their reach and scope, while expanding the control of supply chains. Tighter regulations, financing constraints, emergent resource nationalism and fierce competition mean that agility and adaptability are required. More recently, we have seen a busy period for
The risks inherent in this expansion are further exacerbated by initiatives intent on enforcing stricter regulatory and environmental compliance
quickly and prepare themselves to confront these challenges. ‘Complex’ is the word best used to describe these developments. And this increasing complexity is
the imposition of international sanctions against various countries and entities across the globe – from Iran to Sierra Leone and more recently Ukraine. This has introduced new event risks for commodity markets and commodity exports/importers in particular.
Current commodity trading conditions, therefore, mandate that companies scrutinise their existing internal and external legal systems and capabilities to ensure they can meet requirements related to
The History of Commodity Supercycles The First World War and the 1973 Oil shock chocked-off the supercycles 10%
-10% -8% -6% -4% -2% 0% 2% 4% 6% 8%
Supercycle
Actual Global GDP Growth
Average Global GDP Growth
1827 -1869 1.70%
1870-1913 2.70%
1914-1945 1.70%
1946-1973 5.00%
1974-1999 2.8%
2000- 2017
3.01% 1827 1837 1847 1857 1867 1877 1887 1897 1907 19171927 19371947 19571967 19771987 19972007 2017 Source: SG Cross Asset Research/Commodities, IMF, Angus Maddison (GGDC). Note: 2000-2017 includes SG GDP forecasts. 32 March 2014
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