Today, commodity traders face an increasingly difficult business environment. Over the past twelve months, commodity prices suffered their sharpest declines since the global economic recession. Peak-to-trough declines estimated at more than 40 percent signify the end of the “commodity supercycle.”1 Lower prices, reduced trading margins, greater competition, and adverse financing opportunities have combined to test even the most robust trading firms.
To cope with these challenges, a global commodity merchant looked to diversify its presence in the commodities market. The merchant, who actively traded energy commodities in global markets and invested in commodity infrastructure assets, aspired to shift from coal, which struggled from a poor environmental reputation along with falling prices, to oil products and soft commodities. Having just expanded its commodities trading capabilities, the merchant was particularly eager to grow into new markets.
For several years, the commodity merchant had been leveraging the IHS Global Trade Atlas® (GTA) database to gather and harmonize global monthly coal trade statistics in a user-friendly and comprehensive format. GTA facilitated the company’s researched-based approach to trading and investing. It enabled the firm’s analysts to work faster and more efficiently than before using separate systems and solutions. “Our competitive advantage is derived from a highly analytical approach to supply and demand balances for coal. Global Trade Atlas has been key in enabling us to achieve this advantage,” one of the company’s analysts explained.
Using Real-Time Data to Seize Opportunities
The commodity merchant’s decision to move into oil product trades precipitated the need for even more data and analytics, however. In late 2014, the company’s analysts determined that they needed real-time, global Automatic Identification System (AIS) ship positioning data—both terrestrial and satellite—to evaluate the actual trading patterns of hydrocarbon-carrying ships. To create a powerful forecasting model, the analysts also needed historical position data. This information would allow them not only to track existing trade patterns but could also reveal deviations that presented new trading opportunities.
In addition to ship locations, the analysts sought to enhance the model with ship-specific data. “It was apparent after a while that the positions proved to be very valuable but that we also needed ship particulars data. This information would allow us to drill down through a ship’s technical characteristics to see that it met certain criteria for tonnage, size, dimensions, registration, capacity, and owners,” the analyst said. Ship data also confirmed AIS attributes such as name and the nine-digit Maritime Mobile Service Identity (MMSI) number that identifies a vessel.
Global Trade Atlas allows me to analyze trade flows in order to view and know the markets, and keep track of my commodity. I can perform an analysis that would be otherwise very time-consuming
Forging a Powerful Predictive Tool
Working with IHS Maritime & Trade experts, the commodity merchant built a custom, online trading application that integrated two years of historical ship positions with the ability to import hourly AIS positions. “We needed to build an application around the data because it was bespoke. It was not a standard ready-made product where you get the screen and search capability,” noted the analyst.
Together, the online trading application and the GTA offered a holistic view of the global oil commodities trade: while the GTA provided a long-term view for a portfolio of commodities, the online tool supported real-time trades on a daily basis. Equipped with this dual-pronged perspective, the analysts were able to help traders rationalize immediate transactions and anticipate emerging opportunities.
While the abrupt end of the commodity supercycle poses huge challenges to participants along numerous supply chains, it also opens up new trading and investment opportunities as the market adjusts. By leveraging integrated data, analytics, and expertise from IHS Maritime & Trade, the global commodity merchant is poised to take advantage of budding prospects. The combination of the GTA and a customized online trading application ensure the firm can execute a research-driven approach to developing short- and long-term views on the commodity markets. As a result, it is able to cultivate a resilient growth strategy in challenging conditions.
1 “The End of the Commodity Supercycle Brings Challenges and Opportunities,” John Mothersole, IHS