Such phenomena can be seen across all commodity markets—energy, oil, coal, metals and mining, and agriculture. By actively targeting and extracting value from prevailing market conditions, it’s possible to find commercial success even in mature, commoditized markets. Players need to understand how to leverage their competitive edge, such as by embracing the transition into traded markets, leveraging an asset and logistics portfolio, and adopting new commodity trading technology and approaches, like digital commodity trading.
Embracing Commodity Trading Business Model
Immediate and intuitive approaches to the challenges of commodity trading include gaining a cost-based advantage and redifferentiating product offerings by modifying their characteristics and value proposition. Such moves are effective in gaining a short-term license to operate but don’t typically help with long-term survival.
For a sustainable commercial approach, organizations need to systematically exploit market opportunities and volatility. Producers, for example, must augment their traditional marketing and supply model (which extracts so-called intrinsic value from the difference between the market price of their products and the cost of production) with the commercial arbitrageur model (which also extracts the so-called extrinsic value that comes from price signal discrepancies and imperfections).
Mastering the Next Wave of Commodity Trading: Digitization and Hyperliquidity
Even those who are already pursuing a commercial model—leveraging and managing the entire commercial value chain against trading markets as core value contributors—cannot stand still. The journey of the markets toward more commoditization continues—currently driven by increasing digitization of value chain participants in commodity trading and the sometimes staggering rise of liquidity, leading to hyperliquidity.