Showing posts with label Relationship Management. Show all posts
Showing posts with label Relationship Management. Show all posts

Thursday 30 December 2021

Role of Relation Management Informatics in Physical Commodities arbitrage opportunities

The key to success in physical commodities trading is knowing well what you are selling (Commodity), the price (Price Information) and who you are selling to (Relationship Management).
In the age of easy access to futures price information through Bloomberg, Platts and others, producers and consumers have a much better idea of what is "fair price", so traders have to generally pay a higher spot price and sell for a lower spot price than they would have in the past when they took advantage of information mismatch and could make riskless spreads. With the volatility index in commodities being so high, the trader's main edge is a structural edge such as a long term contract to ship a commodity (assets) at a price lower than the spread.

Geographic Arbitrage Traders who have an exceptional knowledge of their counterparties products (Quality) and a healthy network of one on one personal (Relationship), know the different (Geographic) markets, have a deep knowledge of a (Niche) market they understand, have a view of the market (Time) and execute reliably on the physical side (Logistics) would gain this structural edge and protect their market and profit from higher margin without the need to take position (Speculation). Executing offtake agreements on time and minimizing the operational error could be the difference between a profitable and a losing trade.
In the commodity business there is virtually no difference between traders. The traders who focus on helping clients identify issues they don’t even know they have yet and solves their problems are seen as a valuable addition to the client company and not just another trader - the person clients call when issues relating to the trader's expertise unfold. Traders need to build this level of trust, confidence and likability in order to differentiate themselves from the competition.
This level of Relation Management calls for Informatics that deeply embeds the Geographic Arbitrage Trader in understanding the client's industry cycles, pain points, opportunities, and the shifting landscape to ask questions, listen and understand to help offer a better solution. Informatics facilitates the structural edge for a trader to make a move before other market participants see the price opportunity, to move cost efficiently a commodity from one point in the world to another with a deep understanding of opportunity cost, freight market, storage and light processing.