White Papers Addressing Commodity Market Challenges | Page 2

Addressing Commodity Market Challenges With Digitalization Enabled by Platform Technology
A ComTechAdvisory Whitepaper
NON-STOP MARKET CHALLENGES
The pace of change in the global commodity markets is accelerating and historical
relationships among buyers, sellers and traders, and even the markets in which they operate,
are being interrupted, reformed and reshaped at an ever-increasing pace. Trade wars, military
conflict, climate change initiatives, regulatory mandates, sustainability and even as recently
demonstrated, market shocks brought about by disease pandemics are shifting supply sources
and demand patterns and interrupting industrial output, forcing commodity trading companies
to adapt in almost real time.
Though many of these challenges may be short-
lived, countless longer lasting structural changes are companies are engaging in appropriate risk
practices and have the systems and process in
buffeting global commodity markets:
• New trading venues and exchanges are being
created, and new instruments launched across
virtually all commodities, particularly in China and
surrounding countries. Automated trading is an
increasingly large proportion of trades in many
markets - particularly more mature markets where
local price variations are being eliminated (e.g.
European power markets) - reducing trade margins
and arbitrage opportunities. Maintaining profitability
in these markets requires cost reductions throughout place to limit downside market risks.
• Environmental regulations have become more
pervasive, particularly among Western governments
as the movement to a low carbon future accelerates.
Limitations on CO2 are impacting virtually all
commodities classes, including hydrocarbon fuels,
renewable energies, and even agricultural and
softs products such as proteins, animal feeds and
so on. The new environmental rules are forcing
a restructuring of asset portfolios, increasing
compliance costs and often reducing financial
the supply chain by improving efficiencies.
• Increasing regulation and intrusive oversight
in the form of a myriad of market rules (often
regional and/or local in extent) are impacting all
aspects of commodity supply chains and trade,
such as IMO2020 for marine fuels sulfur content.
Stakeholders, including banks, investors and
financiers, are exercising more oversight and
demanding more assurances that their client returns on existing assets.
• Changing consumer demand is favoring
commodities and products that can demonstrate
socially responsible and sustainable supply chains
– e.g. green power, commodities produced without
child labor or deforestation etc. Addressing these
new market influences requires investments in
traceability solutions and may require alternative
sources of supplies or new methods of production.
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