Over the last several years, the phenomenal growth and expansion of wholesale commodity trading has begun to have a significant impact on both business practices and strategic thinking across commodity supply chains. Producers and processors of raw materials (commodities) and sellers of finished goods that rely heavily on commodity feed stocks have had to come to terms with a business environment of generally increasing and significantly more volatile prices for their raw materials. Despite some weakening in commodity prices on the back of a stronger dollar and increased supply recently, volatilities remain problematic and in the longer-term, prices will continue to increase as the global population continues to grow and as more of that population become consumers of goods.
Recently, many of the larger banks have begun to exit commodities trading under fire from various regulators and a
set of new regulations. Their position has arguably been taken up by large commodity trading firms, with companies such as Glencore, Mercuria, and others expanding their operations and filling much of the liquidity vacuum left by the exit of the banks. These large commodity traders have also experienced much thinner trading margins and have increasingly sought to secure physical commodity supply by purchasing producers and their assets in order to de-risk a portion of their supply chain. In the future, the boundary between producer and trader may be increasingly blurred.
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