Big Data in
Commodity Markets Business Opportunity or Another Fad?
By Richard Quigley
THE COMMODITY LANDSCAPE has changed. Increased competition, a revised regulatory framework, pricing transparency, slower Chinese growth, a globalised market place, alongside investments in renewables, oil and gas shale and LNG, have all contributed to market complexity. But there’s a new dynamic force that is prevalent and accelerating at a pace we have never seen before in human history – Big Data. The question beckons: is this a business opportunity or another passing fad? ‘Survival of the fittest’ – a phrase coined in 1864 by Herbert Spencer, the 19th
century philosopher,
after reading Charles Darwin’s The Origin of Species – has long provided a metaphor for business survival. Darwin articulates that evolution is a process with three fundamental elements: variation, selection and replication. In our modern-day business life, this variation can be shown by experimentation and adaptation of new methods of business process, delivery, service etc. Examples of this include Amazon on redefining logistics, or Facebook on how we interact with each other. Selection comprises the choices made (adoption or rejection) to the current business model that add value, including products, such as Credit Default Swaps (although we now know these derivatives to be a poisoned chalice); or alliances, for instance Microsoft and Intel. Replication copies ideas, strategies and processes that succeed, such as Hoovers replication of Dyson’s revolutionary vacuum cleaner, or Barack Obama’s use of the social media campaign (emulating a tried and tested strategy used in the fast-moving consumer goods industry). In the commodities world, there are a plethora of
within this asset class (rejection of ‘selection’). The global commodities market for banks has shrunk to about $4 billion, from as high as $12 billion at the end of the last decade. Others see this as an opportunity (‘selection’), such as Citigroup and Australia’s Macquarie Bank. To ensure margins are protected (and indeed to
increase them), some of the larger players, with access to capital, are buying and operating physical assets (such as refineries, storage, pipelines) to form complex end-to-end supply chains (‘variation’). In this new commodity marketplace, where unique information is at a premium, such a vertical strategy can ensure information asymmetry. However, to further seek a true advantage, companies need to be inquisitive, sometimes unconventional, and open to a degree of risk-tolerance by adopting new techniques and technologies to survive and prosper.
Big Data Each day 2.5 quintillion bytes
of data are
created, with 90% of the world’s data having been generated in the last two years alone!1
.This
staggering amount consists of both structured and unstructured formats (see Figure 1). Big Data refers to enormous amounts of data, characterised by larger volumes, greater variety and complexity, being produced at a higher velocity.
Big data refers to enormous amounts of data,
characterised by larger volumes, greater variety and complexity, being produced at a higher velocity
We have been using structured data in our
examples. Several of the large investment banks (JP Morgan, Deutsche Bank, Barclays, Bank of America Merrill Lynch and Morgan Stanley) are on the way to withdrawing either in part, or fully, from the European power and gas markets. Their reasons include regulatory constraints on commodities trading and flat or declining prices, with a marked reduction in the banks’ institutional investors
everyday business life for years – for example, market prices or weather data. The data is organised in a pre- defined manner and we therefore have the ability to easily store, query and analyse it. Unstructured data, on the other hand, is heterogeneous and variable in nature, coming in many formats, such as text, video, image and document. Unstructured information is set to reach close to 8,000 exabytes (8 quintillion bytes) by 2015, which makes the
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