Uncertainty looms large in the European Gas and Power markets. What could cause the next big shock? Are you confident you are prepared for the next crisis? Policy developments and structural changes, such as the Electricity Market Reform (EMR) initiative in the UK, may drive extreme price volatility and uncertainty.
Triple Point recently hosted a webinar on How to Survive and Thrive in Volatile European Gas and Power Markets. One of Baringa’s European Energy Market experts, Nick Tallantyre, shared the key issues driving volatility in the European Gas and Power Markets –– and how to protect against them. Triple Point’s Mark Earthey provided an in-depth overview of Triple Point’s European Gas and Power Solution.
It was a very interesting event full of valuable ideas on how to gain clarity in today’s uncertain world. Attendees learned:
- Key market implications arising from the structural and policy changes to the energy markets e.g. the Electricity Market Reform (EMR) programme in the UK
- What European market participants must do to prepare for growing global market connectivity
- Proven strategies to protect against market volatility
- How to optimize portfolios and improve trading operations
- How Commodity XL provides a real-time view of exposure, manages enterprise risk, and handles scheduling — all on an integrated platform
Commodity volatility combined with soaring commodity prices make predicting and maintaining margin challenging for Food and Beverage companies. In a recent article in We Know Commodities, Mark van Erkelens, an executive in Accenture’s SAP Supply Chain Solutions Group, shared four tips for managing commodity volatility in the food & beverage industry.
1. Maintain margin despite growing volatility.In order to ensure a consistent stock of raw materials at the best price, utilize tools that can provide enhanced insight into commodity pricing trends.
2. Integrate financial and physical markets. Research from Accenture’s Institute for High Performance shows that market leaders take an end-to-end approach to the sourcing, selling, trading, and logistics processing of commodities. Companies that integrate financial and physical markets improve decision making, reduce operational risk, and accelerate their ability to move in and out of positions.
3. Identify market opportunities before competitors. Don’t be the last to know. Utilize advanced tools for market simulation and planning, combined with predictive analytics, to identify market opportunities before competitors. These tools will also allow you to forecast results more accurately and develop more effective reporting mechanisms in general.
4. Optimize trading agility and integrate sourcing needs. Today’s market leaders use advanced simulation technologies to model demand forecasts and make refined trading decisions based on forecasted as well as unanticipated needs. Look to integrate the needs of the sourcing units – from logistics through invoicing and financial processes.
Mark concludes the article by saying, concludes the article by saying, “Integrated and optimized supply and commercial planning capabilities are critical to driving revenue and profit maximization – and key to high performance – especially in our volatile global environment. By implementing a fully integrated, scalable, end-to-end approach to commodity management, organizations improve real-time visibility into enterprise market position and are able to move in and out of positions more swiftly.” Learn more about Triple Point’s Food and Beverage Commodity Procurement Solution, Commodity XL.
With J.P. Morgan’s recent $2 billion loss, financial risk is once again making headlines. It doesn’t look like this loss is going to cause systemic failure, but it serves as a prudent reminder that strong credit risk management systems and practices are vital to surviving today’s risky waters.
In a recent article in We Know Commodities, Dana Docherty and Amanda Lohec, Directors at Opportune, warn that “All too often, spreadsheets that are intended to be a stopgap measure become comfortable and are accepted as a long-term solution. Replacing those spreadsheets with Credit Management and Reporting (CMR) systems is critical to developing strong credit risk management capabilities.” In the article, they also share some important lessons learned from credit risk and reporting system implementations. The following are some lessons learned to ease the transition:
1. Understand your data environment
2. Review and document your current credit processes
3. Consider a modular approach
4. Carefully consider product enhancements
5. Manage your common data
6. Enforce good business processes
Beyond protecting you from losses, credit risk systems can help you better understand traders’ profitability – neither of which you can do with spreadsheets. Read more about Triple Point’s award-winning credit risk solution, Commodity XL for Credit Risk™.
Are you in full compliance with AMIRA P754? The importance of coherent material balance results has long been recognized by mining and metallurgical companies. Due to recent accounting scandals and the resulting tightening corporate governance, companies are becoming increasingly concerned with how the reported numbers are obtained and how much accuracy can be attributed to them.
As a result, The AMIRA P754 project was launched in 2004 to develop a rigorous set of metal accounting guidelines for the mining and metallurgical industres. The guidelines stress the importance of state-of-the-art metal accounting systems, such as Algosys Metallurgical Accountant™, and warn that companies using spreadsheets for metallurgical accounting lack auditability and data accuracy and are not in compliance with AMIRA P754.
The Canadian Institute of Mining, Metallurgy and Petroleum (CIM) recently published an article on Implementing the Ten Best Practices of Metal Accounting at the Strathcona Mill. It is an excellent case study on how Algosys Metallurgical Accountant helped Xstrata meet all AMIRA P754 guidelines – including the ten principles of best metallurgical accounting practices (BMAP). It also explains how Xstrata was able to eliminate spreadsheets, gain visibility into key plant performance indicators, and optimize performance and recovery.
You can read the full article here. I hope it provides some valuable insight into AMIRA P754 and fresh ideas on how to automate, standardize, and accelerate your metallurgical accounting cycle.
Are you struggling with disparate commodity trading systems, overuse of manual processes and spreadsheets, and underuse of third party solutions? Have dramatic changes to the energy markets outpaced your technology capabilities?
If you know you need to upgrade your Energy Trading and Risk Management (ETRM) system, but are overwhelmed by the idea of ETRM vendor evaluation, ETRM system selection, and ETRM implementation, you are not alone. Structure’s Baris Ertan recently wrote an article on how to determine ETRM requirements. He explains that if you ensure the right ETRM requirements, “you’ll be rewarded with a system that meets your needs and prepares the organization to take advantage of the opportunities afforded by today’s complex and ever-changing energy markets.”
A few tips that I found particularly useful include:
1. Create a process review that includes an “as-is” baseline and “to-be” vision. Market demand, price volatility, and derivatives legislation continue to drive change in the energy markets. He smartly advises to incorporate planned growth in commodities, instrument types, physical assets, geographies, markets, currencies, etc.
2. Engage front, middle, and back offices in requirements gathering. The best solutions for staying ahead of the curve in today’s complex markets are end-to-end solutions. It is critical to involve IT, compliance, legal, procurement, and senior management in this strategic initiative.
3. Consider integration strategy early. Does a best-of-breed or a single system approach best fit your resources and capabilities? Baris explains that “an early investment in time on this process pays dividends. It is a key input into a requirements matrix that feeds vendor evaluation, implementation planning and estimations, solution design, testing, and ultimately deployment.”
4. Conduct scenario–based demonstrations. Your business requirements are unique. Baris advises, “it’s crucial to translate business requirements into detailed business scenarios that each vendor can model and use to showcase its solution.” I couldn’t agree more.
Determining your ETRM requirements is vital in conducting a rigorous vendor evaluation that renders the best functional and technical fit for your organization. A company can’t underestimate the importance of doing it right – taking shortcuts or rushing the process can have severe long-term financial and operational ramifications that are difficult if not impossible to rectify.
For more ideas on how to determine ETRM requirements, view on-demand Triple Point’s recent Commodity Trading, Procurement, and Risk 101 webinar. It highlights the latest must-have requirements for ETRM success.
Is your commodity trading and risk management system adequate for the “new normal?” New regulations in the US and Europe, extreme price volatility, capital constraints and shorter cycle times demand new risk management strategies.
Triple Point recently hosted a webinar with Accenture’s commodity trading and risk management expert, Alex Chandy, on the latest trading and risk management best practices. Triple Point’s own risk expert, Greg Leck, also discussed how Triple Point’s leading CTRM solution delivers up-to-the-minute risk intelligence to manage portfolio risk exposure, set limits, and control risk.
The webinar highlighted valuable tips on how to deal with today’s market chaos and uncertain regulatory environment. Key takeaways included:
1. How to optimize risk and create opportunity in the face of
high frequency trading
2. Tips on how to avoid losses and identify hidden risk with
broader scenario analysis
3. A clear understanding of the Commodity Super Cycle and
what it means to your business
4. Why it is NOT and Excel world anymore
Deloitte just released an outstanding report, Tracking the Trends 2012, on the top 10 issues mining companies may face in the coming year. Some of the top challenges include rising capital costs, commodity price chaos, government taxes, and growing labor shortages. Many of these issues have a familiar ring. However, the Deloitte reports warns that: “The factors influencing the global mining industry are moving to a new level of extremity.”
The report is full of practical suggestions to tackle the top challenges, including new strategies to:
- Bring costs under control
- Manage commodity price volatility
- Improve capital project management
- Attract financing
- Mitigate the risks of diversification and
- Plan for unforeseeable amid greater volatility
Other key takeaways include:
- Many opportunities remain to use automation as a tool to fight cost inflation
- Improved forecasting is needed to handle greater commodity price volatility
- Key challenges have reached a new level of extremity and require improved collaboration across the entire global enterprise
Vale, Rio Tinto, American Anglo, and many other leading mining companies are fostering improved collaboration by using Triple Point’s end-to-end mining software solution, QMASTOR Pit-to-Port, to provide an integrated view of their global supply chain. This enables them to improve operations and maximize profit through efficient use of resources. What are you doing to ensure consistent practices and communication across your entire global enterprise? Could an integrated view of your mining operations drive profits to a new level in 2012 and beyond?
The Commodity Management Blog has been closely following the top Commodity Management issues throughout the year. Not surprisingly, posts discussing Dodd-Frank top the list. Below is a complete list of the 10 most popular posts over the past 12 months based on views and shares. We thank you for following us and hope these posts have provided valuable tips on how to manage commodities smarter.
2. The Treasury Function and Commodity Risk
3. Life in a Dodd-Frank World
4. 4 Out of Top 6 Commodity Traders Use Triple Point
5. Can There be Good News in Men’s Underwear?
6. Triple Point’s Partnership with SAP
7. CTRM Checklist for Agriculture Companies
8. 5 New Rules for Credit Risk Management
9. Surviving Global Economic Uncertainty
10. Purchasing: The Impact of Risk and Volatile Raw Material Prices
We have some really great things in store for 2012, so here’s to a year of fresh ideas for Commodity Management!
I’m excited to share the news that Triple Point has announced its acquisition of QMASTOR. QMASTOR is the premier provider of software solutions to manage the tonnage, quality, and value of coal and mineral supply chains from “pit” to the point of export, refining operations, or consumption. As the Australian-based company says itself, their solutions help deliver “the right bulk material in the right place at the right time and at the right cost.”
Consistent with Triple Point’s previous acquisitions (Energy Crossroads, TradeWell Systems, CoralGrid, INSSINC, ROME, Softmar, and Enerbility), the acquisition of QMASTOR is completely complementary to the rest of the Triple Point product set. Triple Point’s vision has always been to provide organizations a comprehensive solution to more efficiently and profitably manage the complete commodity value chain from production to consumption.
With QMASTOR’s flagship product, Pit to Port, we are now able to offer bulk commodity-specific functionality from one end of the supply chain (e.g., the mining pit) to the other (e.g., the power generation plant) for coal and other minerals. QMASTOR’s clients are some of the most prominent natural resource companies in the world and include BHP Billiton, Rio Tinto, Vale, Anglo American, Xstrata, and Peabody Energy.
After four long years of debate, the CFTC has finally decided to impose position limits on commodity traders in an effort to curtail speculative trading. The new limits will cover 28 commodities. What does it mean and how will it affect the markets? Ed Meir, an analyst at MF Global, says that it won’t have much effect in the short term, but speculates that costs are going to rise for the end-user in the long term.
If you’re looking for a short summary on the new ruling, I highly recommend you watch the video below with Meir. He does an excellent job of explaining who the new limits are going to impact and has some interesting thoughts on what the CFTC did wrong and why the ruling baffles him.