Could metals traceability signal the end of the CTRM?

With responsible sourcing high on the agenda across commodities, many industry bodies are taking steps to improve sustainability and transparency. The London Metals Exchange (LME) has launched several new products in 2021 with these goals in mind, and their results could be more far-reaching than appears at first glance.

The LME have publicised their commitment to helping the metals supply chain improve transparency and sustainability for some time, and the six additions to their suite of contracts on 19 July represent another step on the exchange’s journey of facilitating sustainability.

The new contracts include a new Lithium Hydroxide CIF cash-settled futures contract to support the battery materials sector, an essential part of the energy transition. Many of the other new contracts focused around scrap metals, another key area the LME has identified as necessary to support the energy transition and the move to a circular economy.

LMEpassport

The other significant recent announcement from the Exchange is that LMEpassport will be launching on 31^st August. LMEpassport will replace the existing paper-based transfer of Certificates of Analysis (CoAs) with a new digital transfer process. Following the August launch, the requirement for warehouses to use LMEpassport will be rolled out gradually over three years, beginning with aluminium this October.

The move to an electronic CoA system conveys many advantages for organisations across the supply chain. As well as improving operational efficiency, it prevents many of the challenges of paper documents, such as degraded quality or lost documents as they are transferred to new owners – an issue that adversely impacts transparency for all downstream organisations too.

As well as supporting transparency by better preserving and sharing documents, LMEpassport will allow organisations to include voluntary value-add information such as additional sourcing credentials or carbon emissions. And once these details are added to LMEpassport, all subsequent owners of the metal have access to the information, giving certainty, accessibility, and transparency to the full supply chain.

What this means for your systems

This enhanced traceability can be a real benefit, but only if your organisation is positioned to make the most of it. For those selling on the LME, a major capability will be the ability to add the supplementary information easily, without impacting on document processing times or creating undue extra workload for your team.

Using technology to better-manage stock, documents and sustainability data reduces the reporting burden on teams and gives them the internal data visibility they need to update LMEpassport with the information that customers increasingly want, without slowing down your operations. And whilst much of this sustainability and traceability data is currently voluntary, the industry is expecting more and more each year, so it may be advisable to develop the internal capability to deliver this data now, before it becomes the standard.

And for those receiving stock with additional information from LMEpassport, it’s important to be able to identify the lots with enhanced traceability data quickly and easily. Providing this data to the front office means that it could generate an additional premium if relevant to your buyer. And operations teams need to know which stock is associated with a given certificate or other sustainability data, wherever it is currently. They need to manage this data efficiently so that they can provide a good customer experience and help your organisation become a supplier of choice, and they need a complete view of all stock so that the most efficient and profitable allocations can be made.

From CTRM to Commodity Management

This LME announcement is only the latest of many changes that require better traceability processes. The organisations with the systems in place to support traceability will create a competitive advantage for themselves as this grows further in importance.

Organisations need better data transparency internally to ensure it is shared across teams as soon as it is available, and need to manage lots in warehouses and through the different logistics stages, whilst maintaining a clear record of the data that can easily be transferred downstream. This is where commodity management technology comes in.

Commodity management technology evolved from CTRM to meet a wider range of requirements that CTRM systems were unable to support. Commodity management particularly improves organisations’ capabilities in logistics management and the physical supply chain. It allows you to manage all CRM, physical and financial trading, hedging, storage, transportation, risk and reporting in one system. This means that any data associated with a counterparty or lot is instantly available across your organisation and remains linked to the record, whatever transformations occur during processing. You also maintain complete traceability from before stock arrives until it is delivered to your customers, and can easily pass this traceability data on with confidence due to the clear audit trail created in the commodity management system.

With the focus on logistics, a good commodity management system needs the flexibility to work with your own processes and other IT systems, and to be flexible enough to accommodate all the small details that make your organisation unique. This flexibility will be more important than ever over the coming years as the industry adapts to more diversity and a different product mix, such as the growth of new battery metals and recycled metals. Trading organisations need the ability to pivot their strategies to take advantage of new market opportunities and their technology needs to be agile enough to support this transition, whatever form it takes in future.

 

To find out more about how commodity management technology can support your organisation at all stages of the trade lifecycle, explore our solutions for metals.