There were so many valuable points raised at the recent commodity trading event CTI Live! that we couldn’t provide one quick overview. In part one, we covered digitalisation in commodities, commodities and politics, and climate change: how can commodity trading catch up?
In this second part we will explore the key points from panel sessions discussing trade finance, what is commodity trading looking like in 2021, and what will the post-Covid supply chain look like?
Does the new trade finance landscape favour the big players?
This panel session featured Bruce Tozer, a member of Gen10’s Advisory Board, as well as 3 other experts on commodity trade finance.
The session began with the question of whether there are currently liquidity issues. The panellists explained that some of the largest banks have exited the space, which of course has had an effect. But there were signs pointing to this exit before it happened, so many companies had already been looking for alternative finance options. It was also pointed out that some major finance providers will likely return to the market shortly.
Bruce pointed out that the collapse of Greensill Capital will have repercussions, as funders will be looking more carefully at their and their partners’ activities. He also pointed out that from a finance provider’s perspective, there will be a “flight to quality” as it is easier to lend more to an established client than to set up lending to new, smaller companies. His advice to anybody on the borrowing side is that they will have to be on top of their positions and data – and be able to share these.
His prediction for the future of the market is cautiously optimistic: There will be some failures, but if there are good trades to be financed then the money will find its way there as it always has, although there will certainly be more oversight.
On digitalisation, Bruce explained the importance of remote transformation projects in the current environment, as there is a real and pressing need for hard risk management. He discussed how contract management is still ropey and banks still manage finance on spreadsheets. They are aware that they need better access to data and collateral, and they can and will be improving.
There was also a discussion of ESG and carbon. Bruce explained how he is expecting to see carbon form part of the cost of commodities, and investors will penalise companies that do not monitor and manage it. But as with any disruption, there are great opportunities as well. The panel did, however, have a note of caution; ESG efforts may fail if Chinese buyers continue to purchase based on the lowest delivered cost of the commodity, rather than the anticipated lowest delivered cost including carbon exposure.
The panel also answered a range of questions including how SMEs will emerge from the pandemic. Bruce’s prediction was that there will be some consolidation as the big companies get bigger and mid-markets find a niche and do it really well. He expects that those with good risk management practices will come through the pandemic and grow. And amongst other questions, there was a discussion of the advantages and disadvantages of alternative funding options including trade finance funds.
Watch the full panel session now to find out more.
Bull vs Bear: what is commodity trading looking like in 2021 (and beyond)?
This session began with a poll showing that the audience is on balance more inclined to believe that we are heading into a commodities supercycle – but the panel was less sure.
The idea of a supercycle right now was described as “a simple solution to a very complex problem”, and the panel explored this complexity in great depth over the 45-minute session. They examined the impact of a wide range of factors; including weather, electric vehicles, the strength of the dollar, inflation, oil demand and biofuels. Discussions also looked at freight rates, logistics sector supply and demand, and whether bitcoin could ever be used to trade commodities.
The panel’s conclusion was that we are not in a supercycle at this stage, although there is a lot of talk as if we were – find out why this is the case.
What will the post-Covid supply chain look like?
The Covid-19 pandemic caused a move from globalisation to regionalisation and localisation. These changes are still happening, and the panel predicted that they will be for the next 9 to 12 months. The pandemic exposed the risks in the biggest supply chains, which frequently placed too much dependence on one source or area. The lesson for supply chains has been that we need to ensure they are diversified so that any future losses are limited.
As with many of the event sessions, the role of digitalisation was an inevitable conversation point. The panel discussed how digitalisation is a part of life and there is no choice but to rapidly digitalise. Echoing sentiments expressed by Gen10’s Richard Williamson earlier in the event, it was commented that the companies who have already undergone digital transformation are seeing the fruits of their success and growing faster than those who have not.
The panel also discussed supply chain decarbonisation, and the fact that every industry is working on decarbonising. Their advice was to start decarbonisation efforts with the low-hanging fruit such as first-tier suppliers and logistics, before moving on to more complex suppliers. Different scenarios for decarbonisation were discussed, and the panel agreed that the industry is changing. However, decarbonisation will take time as major investments are required.
Find out more about these and other factors impacting on the post-Covid supply chain in the session replay.
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