CTRM – The Next Generation

There is no doubt that technology has undergone a sea-change over the last decade or so potentially making it possible to build and deploy software faster and more cost-effectively while offering a host of features that help users to work smarter, faster and with less opportunity for error. Additionally, the way that applications are designed and built has also changed to take better advantage of these technologies. While arguably there is no single technology that facilitates a paradigm shift in Commodity Trading and Risk Management (CTRM) software, when you combine advances in all areas of solution development and deployment technology, then such a leap forward is both likely and desirable.

Nowhere is the gap between the possibilities offered by these leaps in technology and what is available as commercial solutions more apparent than in the commodity trading and risk management software category. There are many aging, legacy, solutions still being utilized, marketed, and deployed and yet, this is an industry that is experiencing unprecedented demands and change, which in turn, are placing increasing demands on the software it utilizes. What most commodity firms are seeking is more agile software platforms that can allow them to adapt and evolve through these changes. This growing demand is also accentuated by the younger, more tech-savvy people entering the business whose expectations are not being met by many existing solutions.

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Managing Supply Chain Complexity & Exposures

The supply chains for bulk commodities, including agricultural, metals/ores and some energies, are complex – usually necessitating transportation and storage using trucks, trains, ships, barges, pipelines, and terminals/storage facilities. These movements, and the assets utilized to make them, introduce and accumulate both cost and risk to the commodities owners with each step in the chain.

Additionally, as these commodities transit the supply chain, they may undergo changes that will impact their value, both as traded commodities and as a stock or inventory. These events can include transformations to finished products (such as refining crude oil into numerous petroleum products or grains milled into flour) and repackaging from bulk loads into smaller containers such as bags for wholesale or retail sales.

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Global Sugar – A Complex Market that Requires a Fit for Purpose CTRM Solution

Sugar is a global commodity, with almost 180 million metric tons being produced in more than 120 countries each year. Though much of the sugar produced by these countries is consumed locally in food products or, increasingly, for ethanol production, the largest producing countries are often exporters as well and in total contribute 60-70 million metric tons delivered into the global market each year.

Raw sugar, also known as centrifugal sugar, is the primary traded form and is produced from either sugar cane or sugar beet. In any given year, 70-80% of sugar is produced from sugar cane grown in tropical countries, with the remaining 20-30% is produced from sugar beet, a root crop grown mostly in northern temperate zones.

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Managing the Worlds Metals

In an era that is likely to be dominated by the energy transition, metals are set to become the new foundation of modern society. As more of everything is powered by clean electricity, demand for metals will pick up with everything from greater quantities of base metals needed to make batteries to store it all the way through to copper for the cables to carry it.

Other metals like iron in the form of steel, along with rare earth elements and speciality metals, will all also be needed in ever greater quantities to support electrification and construction. Metals like Lithium, Cobalt, Manganese, Zinc, Mercury, Silver, Cadmium are the key components of many types of battery along with Graphite in some instance.

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RPS and RECs – Managing an Increasing Regulatory Burden

Renewable energy certificates or ‘RECs’ have become the currency of the renewable power industry, allowing power providers to expand their product offerings and offer ‘green’ power irrespective of whether or not they can physically generate it. RECs also assure consumers who opt to buy renewable power, that that power has either come directly from a renewable generator, or if a renewable generator is not servicing their facility, that it is offset in the market by power from a renewable source, such as wind, solar or hydro, in another geographic area.

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Global Renewables Transition Requires Dedicated ETRM Capabilities

Renewable energy resource development is accelerating around the globe as the push to reduce carbon emissions continues to gain momentum.

The Energy Information Administration (EIA) estimates that:

Wind and photovoltaic (PV) energy capacity will double from 1226 GW to approximately 2349 GW by 2025.
Global renewable capacity additions grew by more than 45% from 2019, with 110 GW of new onshore wind capacity added and 135 GW of new solar PV installed.
The share of renewables in the U.S. electricity generation mix will increase from 21% to 42% by 2050, while wind energy development is projected to be the main driver until 2025 and solar generation will see 80% growth from 2025 through 2050 after the production tax credit (PTC) for wind expires.

As the pace of renewable energy expansion quickens, market participants will continue to adjust to the commercial and financial implications as well as production variability and intermittency, reliability, and grid stability. In this white paper we will explore the changing nature of power markets, the complexities that will challenge utilities, power off-takers and traders, and the critical ETRM systems they rely on to ensure profitability.

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Global LNG Navigating Risks in a Dynamic Market

Liquified natural gas (LNG) has been a traded commodity for more than a century. But only in the last couple of decades has the market expanded to meet the ever-increasing demand for energy, through low carbon emissions energy sources. With the development of the massive Qatar LNG facilities in the mid-1990s and the increasing demand for imported gas, global LNG trading has grown from about 50 MTPA in 1990 to more than 350 MTPA in 2020.

Most energy commodities struggled with lower trade and consumption volumes under the pandemic-induced industrial shutdowns in 2020. LNG trade was, however, up slightly at 0.4% during the year, continuing its uninterrupted streak of year-over-year growth since 1996. However, that growth was far below rates in the preceding years which averaged 7% since 2004.

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Disruptive Technologies – A 2021 Update

In 2021, Commodity Technology Advisory LLC (ComTech) published its first Disruptive Technologies research report (that version kindly sponsored by FIS). Technologies covered in the study scope included cloud/SaaS, Artificial Intelligence (AI), Machine Learning (ML), big data, automation and blockchain, amongst others. The findings were supported by an industry survey that led to the broad conclusions that cloud/SaaS and data management initiatives were in flight. AI, ML and automation seemed to be prepping for an explosion of use while blockchain was overhyped and lagging. Over the last couple of years, our general market observations as analysts have largely confirmed the results of the research.

In early 2021, ComTech decided that the whole topic was worthy of a revisit as a result of many changes and trends in the industry and so began a new project. This report is the result of those efforts, and it was kindly sponsored by Invensoft, Kyos, and Commodities People.

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What is Modern Risk Management?

In all of its forms, risk management is rapidly growing in importance within the commodity asset class. It will only become even more critical and complex in the future. Driven by unprecedented levels of change in the industry ranging from geopolitics to carbon, effective risk management is shifting for many commodity firms from just another activity to be managed to a critical component of business strategy that helps drive and inform brand, gain financing and trust, and demonstrates proper controls.

Of course, larger commodity-oriented businesses have always had a more sophisticated approach to managing risk, even using it as a strategic and competitive advantage. These businesses are heavily impacted by the number and pace of change in the industry and inhibited by their legacy solutions and overall systems architecture capabilities. This paper looks at why a new and broader risk management focus is rapidly emerging in commodities, what it involves, and what this means for risk management solutions and systems architectures, particularly at top-tier commodity businesses.

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