RiskTech Forum

Chartis: The hybridization of commodity trading risk management

Posted: 3 March 2015  |  Author: Philip Mackenzie  |  Source: Chartis


The commodities markets are growing in complexity, and are increasingly dominated by large integrated trading houses.  The importance of the supply chain and logistics elements have increased significantly, and market structures have shifted, and so risk management solutions must change in response.

Regulatory drivers are forcing energy generation towards a model of management closer to that of the financial services, while commodities are focusing more on details of logistics management. The “bridge” between these two remains energy commodities such as oil and gas. Meanwhile, banks and other financial actors have retreated from the commodity trading space, driven by their tightening budgets and these increased regulatory burdens. The void left behind has been filled by integrated trading houses, which have an increased focus on loans, trade finance, and proprietary logistics infrastructures.

Flexible logistics environments should therefore be able to align material plans and costs with the modeling of market conditions and impacts. The integrated CTRM frameworks of the future may serve similar purposes to the trading and collateral management platforms for large sell-side firms, or ERP (Enterprise Resource Planning) services in process oriented firms.

The role of risk management is therefore being altered to encompass raw materials processing and extraction, and is driving firms towards becoming hybrid combinations of traders, producers and logistics players. Hedging thoughout the supply chain is being addressed with products such as the “virtual steel mill”, and risk analytics must broaden their focus to accommodate these changes.

Chartis recently published its 2014 report for Commodity Trading Risk Management Systems. To obtain the report please click here.