Metals trading, composite curves and CTRM

Metals and concentrates traders are highly creative when it comes to their strategies. They manage pricing based on a wide range of variables to ensure their customers are happy, their products are competitively priced and they maintain a profit margin – even at times when industry margins are tight.

One of the ways this creativity is achieved is by maintaining optionality in selecting an exchange to price against or by basing pricing on multiple exchanges through different composite curves.

This optionality in composite curves can be incredibly varied as traders come up with more inventive strategies, drawing from multiple exchanges and varying weightings to find solutions that work for the business and their customers. And this flexible approach is not limited to just the indices used; traders also often have their own strategies for pricing assays, FX and interest rates.

Does your CTRM support your pricing strategy?

With this complexity in pricing, unless the business has the right software, it can be difficult to calculate expected and actual returns and experimenting with different options to find the best strategy can take a long time. Some of this complexity can be managed with spreadsheets, but these are prone to their own particular risks. A trader may be accidentally using older data or have made an unintentional change to a formula, which may or may not be caught quickly. And even when trading and finance teams are using the same correct information, it can still take time to verify information, and copying errors do still occur.

Metals and concentrates traders therefore need a CTRM that supports traders in developing the best models, accounting teams in invoicing correctly and teams involved in hedging and reconciliation to get the best results from these strategies. Without this CTRM support, traders are not making fully-informed decisions and the risk of errors when calculating or copying information to create contracts and invoices is significant.

A metals CTRM

At Gen10, we designed our metals functionality with Concord Resources to ensure concentrates traders have all the CTRM functionality they need to support their varied and complex strategies. Gen10’s Commodity.Manager is a cloud CTRM with a focus on usability, convenience and automation, even when managing highly complex concentrates pricing.

Advantages of a metals CTRM

1. Pricing Engine
2. Instant What-If Analysis
3. Assay pricing
4. Recalculation

The Pricing Engine automatically calculates pricing for each system-generated document and component of a contract based on the information a trader selects. To make these pricing calculations based on a composite curve, the trader simply selects which index or composite index they wish to use and the rest is done automatically. And the Pricing Engine provides the same level of optionality and automated calculations for FX and interest rates too.

The Pricing Engine also makes What-If analysis incredibly easy. Changing any information in the system leads to dependent data being recalculated; so all variables can be changed within the system and the outcomes seen instantly until the trader finds the best results. And again, this support extends beyond the composite curve to a range of other options.

Within concentrates, assays form a crucial part of the pricing structure, with premiums and discounts dependent on the amounts of various elements present within the concentrate. Your pricing structure for these assays may also include tiers, so on top of calculating premiums or discounts by the element percentage, people need to be aware of the thresholds where the pricing formula changes. This too is automatically managed within Gen10’s Pricing Engine, greatly reducing complexity and errors and once again providing an instant view of the impact of each change – without any manual calculations or changing formulae.

The calculations are also invaluable for updating information as contracts progress. For example, if a shipment is inspected, the assays may need to be updated to reflect their actual values. This can be completed within an inspections workflow in the Gen10 system, and the system-generated documents associated with the shipment update based on the recalculation.

Traders work hard to develop their winning strategies and deserve to see them implemented well. A good CTRM designed for metals such as Gen10’s Commodity.Manager makes this possible by making it easy for all within the business to access key contract information and by reducing the time and potential for errors that occur when these complex pricing strategies are calculated manually. By allowing all within the team to execute strategies faster and more accurately, Commodity.Manager gives trading teams that much more time to work on refining and improving their strategy – and the profitability this creates.