Dawn of New Era in Commodity Trading - Act II

Why integrated commodity producers must become more active in asset optimization and trading to survive

Almost every month since Baar-based commodity trader Glencore completed its $80 billion merger with Zug-based mining giant Xstrata in May of 2013, independent commodity traders have bought about $1 billion in assets from commodity producers. Traders are snapping up everything from zinc and coal mines to soybean crushing plants and wheat mills as the commodity-trading industry undergoes its largest transformation in 30 years.

We first predicted this trend in “The Dawn of a New Order in Commodity Trading,” which appeared in the Oliver Wyman Risk Journal in 2012.

One year later, continued investments in assets and a changing funding model are still reshaping the commodity-trading industry.But what is perhaps less understood is that these deals signal that independent traders are about to force producers of commodities – especially oil, gas, minerals,and metals – through a paradigm shift.

In the near future, we predict commodity producers will need to embrace the same sophisticated trading and optimization practices developed by independent commodity traders in order to remain competitive. To optimize their returns on assets, national oil companies, miners, and other integrated commodity producers will be forced to take better advantage of the options available in their networks.This means selling their commodities through long-term contracts, but also more proactively trading the commodities they produce and selling them through a wider variety of channels.

Dawn of New Era in Commodity Trading - Act II