Commodity Risk Management
 

CTRM Blog


17.10.2019

Data - part 2

So you have many offices globally, a data team has visited each office and worked out how to obtain an automated dump of their transactional data. Each day that data can be translated into a standardised unit and field structure. 
In the most basic form, this will be a spreadsheet template or csv file, populated from the local contract management system and translated into a structure which can then populate the central data-warehouse. The ultimate goal is a real time update from the source system to the data-warehouse. 

Once the transactional data becomes available as an homogenous and clean source, then many advantageous options present themselves. 

I must mention another critical element at this point that relates to correct mark-to-market. Forward open risk needs to be marked to a current market price. [Read More…]

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09.09.2019

The problem with data and the decentralised commodity business

It remains a serious issue and has been such for many years. Although many have tried, very few have successfully found a scalable off-the-shelf solution that can manage global data across a decentralised commodity platform.

The commodity business is not uniform in process. There are countless different products and along with them unique aspects of operations in their supply chain. [Read More…]

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04.07.2019

What of Operational Risk ?

Many times trading company risk managers discuss the three primary focus areas of risk management departments as Market, Credit and Operational.

Being more quantifiable Market and Credit risk are easier to model and are often represented in nice graphical format in distributed risk reports.

It is a reality that operational risk assessment takes a back seat in management reporting. However, history has shown that inattention in this area has lead to some of the largest risk disasters. 

Operational risk must form the backbone of any risk strategy and boards should provide guidance and ensure there is assessment and inclusion in regular reporting. [Read More…]

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08.05.2019

How to improve margin with structured trade finance(STF)

In todays bulk commodity market there is often little, no or even negative margin when buying in an origin country Free On Board (FOB) and selling back-to-back into destination Cost Insurance Freight (CIF).
Many larger commodity traders have found a way to increase their margin by using a clever routing of ownership documentation.

Commodities are traded on documentation rather than physical delivery and with this in mind, cargoes can be routed through countries that will never actually take physical delivery and yet for finance purposes appear to do just that.  

The key is to identify countries where the onshore currency is controlled by a central or reserve bank and where there is also an active offshore NDF market. [Read More…]

Admin - 15:55 | 2 comments

02.05.2019

Process Spaghetti

What causes consistent margin leakage and sometimes catastrophic loss in commodity supply chain and trading businesses?  
Where can one find the best return on investment? 

Origin to destination flow of bulk commodities is a thin margin business. What can be gained through good positioning, tight logistics and reliable customers can be destroyed very rapidly through poor internal process and lax risk management.

I have lost count of the number of times I have seen margins wiped out due to poorly hedged forex exposure, unauthorised contractual add-ons, poor execution errors, lack of limit enforcement and inefficient administrative procedures. [Read More…]

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