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How digitisation can address the idiosyncrasies associated with commodity trading

Digitisation is changing the way commodities trade, and transforming the value chain, returning as much as $70 billion back to market participants. But what challenges and trade idiosyncrasies have contributed to such a large value pool? To find out, download our white paper, written by renowned economist, Dr. Jeff Makholm.

All commodities – whether the product of mining (“hard” commodities), agriculture (“soft” commodities) or energy, such as LNG – are characterised by a limited number of sellers and defined set of buyers. Additionally, all require some kind of “transformation” to bridge the gap between producers and ultimate consumers or businesses. These transformations are dependent on location (specifically the transportation needed to trade), timing (specifically storage needs), and form (specifically processing raw commodities into products that are suitable for final delivery, consumption or manufacture).

These location, time and form idiosyncrasies combined with the price reporting agencies (PRAs) and exchanges most commodities use to determine market value and volume liquidity points (often inaccurately), can make commodity trading expensive and inefficient. In fact, research conducted by consultancy group BCG estimates these market imperfections and challenges have led to a value pool worth around $70 billion.

Ensuring market participants retain their share of this margin, and address the unique nuances associated with any commodity trading, is specifically why GLX Digital’s next generation workflow software was developed.

By digitising workflows associated with commodity trading, companies can transact directly with buyers meaning profits remain with market participants and not external parties. Digital trading platforms, such as GLX Connect, give commodity companies greater organisational visibility and efficiency, enabling them to access a larger number of counterparties instantly, rather than manually calling customers to gauge interest in their products.

In our white paper, Transacting in Idiosyncratic Seaborne Commodity Markets: Oceangoing trade in LNG, author Dr. Jeff Makholm explains in detail the idiosyncrasies that exist specifically in LNG trading. Although LNG-centric, Dr. Makholm’s economic theory can be applied to any commodity that’s trade is affected by time, location and form challenges.

Download the white paper below.

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