Assay management is a crucial and complex aspect of metals trading. Concentrates in particular depend heavily on properly managing assays, and in the commodity management/CTRM space, concentrates are recognised as one of the most challenging commodities for software to support.
Premiums, discounts and penalties for each element within the ore need to be correctly factored into the valuation for each concentrates contract according to the assay results. And for refined metals, grades, shapes and location can all play a role in pricing and valuations.
Managing these assays effectively is an integral part of contract management; impacting client relationships, deal profitability and asset turnover. There has been a strong technological shift in recent years towards commodity management software that automates and simplifies assay management, amongst other processes, as organisations look to unlock these benefits.
But as customer demand patterns shift in future, will assay management also need to adapt?
What will the future look like?
Responsible sourcing will play a greater role in the near future. The LME in particular is making several changes across different metals, including introducing new reporting requirements. For some contracts, this will essentially mean a new type of assay will need to be managed for each shipment, and for others these new assays could provide an opportunity to create value from premium pricing.
For example, the new LME responsible sourcing requirements create new levels of due diligence and audit that will apply to all brands listed on the LME. For those who need to complete these new requirements, there is no price advantage to doing so, but effective systems that manage the supply chain and demonstrate transparency can reduce the scale of the cost-centre and therefore still create a competitive edge.
Other LME initiatives create the opportunity to capture premium pricing for sustainably-produced metals. LMEpassport is due to be rolled out over three years, beginning with aluminium in 2021. This will allow for voluntary disclosure of standard sustainability credentials. Although this will not initially be supported by a new low carbon aluminium contract, it may represent the first stages of a move in that direction, especially if it shows that demand is there. And other new LME contracts will soon be adding even more optionality within sustainability and the circular economy, particularly for buyers and smelters, with several new scrap contracts coming to market in 2021. It is looking increasingly likely that sustainability data will eventually become an additional ‘assay’ that needs to be traced across supply chains.
Advanced materials and electric vehicle components may also drive changes in assay standards. With the pace of change in these industries, products that are currently speciality may later become in-demand commodities. And these advanced materials may have stricter assay tolerances, meaning more inspections further down the supply chain and the risk of larger discounts/penalties for impurities and unwanted assays. This means that even with standard grades, inspections may become more important further down supply chains, so the ability to manage stock inspections and allocations within tight tolerance limits will become more important too.
And electric vehicles are also driving supply chain traceability. Joining other automotive manufacturers who have made a range of green procurement decisions, BMW recently announced that they are sourcing aluminium produced by solar power as part of a drive to reduce CO2 emissions in their supplier network by 20% by 2030.
News stories like this are not only relevant for smelters and refiners, as they show that large downstream customers are taking a greater interest in sustainability and traceability throughout the supply chain. It is therefore not only tier 1 and tier 2 suppliers that stand to benefit in coming years from improving their carbon and sustainability reporting. In time these variables may well become assays in their own right with industry adoption. But in the meantime, organisations that can manage sustainability data for their cargoes are in a position to capitalise on growing demand for a range of sustainable specialty products.
Assay management in CTRM and Commodity Management Systems
Assay management functionality in commodity management software can vary wildly, from simple CTRMs that only record information to full commodity management solutions that support traders, risk managers and operators in their roles.
Gen10’s CommOS automates many of the most challenging aspects of assay management. Pricing and valuations are automatically calculated across as many assays as needed for each contract, and automatically recalculated after inspections.
We understand how complex pricing strategies can be, so you can create your own pricing formulae, including tiered assay pricing and saved composite curves, create a valuation instantly, then use the automatic recalculations for quick what-if analysis to help you determine the best pricing model. And the automated pricing features include this level of flexibility for FX and interest calculations as standard too.
Reports that update automatically in real-time also make reconciliation and hedging much simpler, as do tools that show unhedged positions at a glance. But commodity management technology goes even further, giving more control over allocations and shipments and creating better traceability.
Purchase and sales contracts can be matched easily for better supply chain visibility with a complete audit trail, and any documents or sustainability certificates are centrally stored and easily managed, even when splitting or combining stock. Assays for a given contract or shipment are clear and CommOS alerts users who attempt allocations that are outside the tolerance limit.
Older CTRM systems were primarily focused on risk, but modern commodity management systems provide much broader functionality that allows all your teams to benefit from commodity management automation. Assay management can be one of the most time-intensive and challenging parts of metals trading, and it only looks set to include more variables in future. All organisations will need to consider whether they can manage assays more efficiently in future, but those that are already limited by their CTRM are going to have to work much harder to keep up with their competitors.
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