Overview of the industry
Commodities matter. The price of commodities is directly visible in many of the things we consume as well as a whole range of the manufactured goods we buy. It affects the costs of business and so commodity prices are a key driver of inflation as they are of economic activity.
Commodity derivative markets are a vital underpinning to the wider commodity markets, providing open and standardised market places for the coming together of the full range of buying and selling interests, allowing transparent and orderly price determination and the management of price risk within a regulated framework. This is a time of fundamental change in the commodity derivatives markets. The growth of markets, and related financial products, over the longer term, has driven a significant increase in political and regulatory interest.
We can identify three main trends in the commodities trading industry:
– Increasing competitive pressure and customers sophistication is likely to lead to further erosion of the profitability of core trading operations. This is exacerbated by and environment of low volatility across commodity market
– Given high commodity prices and an increasing need to invest in physical assets, capital needs are set to increase substantially
– Three large waves of regulatory change in the banking and derivatives trading environment will further drive up financing and transaction costs while also creating new business and opportunity for physical players as banks scale down their own commodity-trading activities. Regulatory arbitrage opportunities are unlikely across the large trading hubs.
The global commodity-trading industry is on the brink of fundamental change. Regulation will be the trigger that reshapes the balance of power among banks, large-scale trading houses backed by large balance sheets and small to midsize trading houses with more fragile positions. Market forces will trigger commodity, trading houses will need to arbitrage between opportunities much more than in the past. This will require organisational and cultural changes.
Winners will have moved quickly to capture M&A or Market opportunities. Success in the future will be at the intersection of much more disciplined capital consumption and careful balance-sheet expansion around physical assets, as well as stronger positions in financial trading. To paraphrase a famous investor, as the commodity tide recedes, the market will inevitably find out who was swimming lightly
Recruitment trends in the industry
The energy and commodities markets is picking up in the first quarter of the year. The strongest demand is within the downstream oil sector for the specialist with deep knowledge and understanding of oil refinery economics. Agricultural commodities professionals have also been in strong demand, particularly those with strong market fundamentals and forecasting experience. The current situation increases the value of the candidates with the required skills and experience on the market, they are highly valued as it would appear that confidence is returning to the economy, with some physical trading houses increasing their portfolios and E/CTRM activity.
Asquare Partners has a wide network in quantitative profiles in the E/CTRM industry. We help our clients to get the right talent on board to face challenges impacting their industry. We cover the following industries: