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Improving Data Aggregation and Analysis to Address Challenges of an Evolving Energy Market

Improving Data Aggregation and Analysis to Address Challenges of an Evolving Energy Market

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The North American energy markets, influenced by both domestic and international developments, are undergoing a rapid evolution that has and continues to challenge energy commodity producers, processors, and traders. Driven by technical innovation, regulatory intervention and globalization, the changes occurring have impacted the entirety of the energy supply chain - establishing new pricing correlations, increasing operational complexities and creating new markets and trading hubs…and, by extension, created vast new pools of data and information that must be considered when formulating market strategies and trading decisions.

Despite these challenges, for those properly equipped with the tools and applications that can capture, analyze and support real-time decision making, there are any number of new opportunities to profit in this complex environment.

In this white paper we will examine the ongoing changes and the resultant challenges in a few of the most rapidly evolving North American energy markets, and discuss an approach to address those challenges through sophisticated real-time data aggregation and analytics.

Risk Monitoring & Management Trends in Commodities

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Commodity producers, traders, and industrial consumers are all facing a barrage of risks such as price exposure and cyber vulnerability, as well as legal, credit, operational and market risks. The risks associated with buying, selling, and moving commodities only seem to be increasing exponentially with greater regulatory oversight and a broadening of supply chain operational issues like traceability. Many of these risks can be business killers – the actions of rogue traders or the impact of counterparty business failures, for example – and lead to fatal damage such as an inability to access capital or damage to brands (via issues around sourcing commodities or producing substandard end-products). Other risks, such as ineffective price risk management, inefficient scheduling of transportation, or regulatory non-compliance can erode profitability and damage the company’s ability to execute on strategic plans and growth initiatives.

Of course, often where there is risk, there is also an opportunity to profit - but only when those risks are recognized, effectively managed, and properly mitigated. The rise in stakeholder scrutiny and regulatory oversight also means that being able to demonstrate effective risk management across the organization is certainly more important today than ever before.

Commodity Technology Advisory LLC (ComTech), with the support of study sponsor Allegro Development Corp., undertook a snapshot survey of the industry to find out more about the types of risks faced by trading companies and to gain an indication of how and where those risks were being managed.

Supply Chain Challenges: BIOMASS

Supply Chain Challenges: BIOMASS

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Over the last decade, biomass of various kinds has become an increasingly commonly used fuel for electricity generation, particularly in the European Union, which mandated ambitious threshold targets for the share of renewables in total electricity generation.

Wood chips and pellets have taken a large share of biomass production, not just in Europe, but also parts of Asia as well. In fact, according to the US International Trade Commission, production of wood pellets in the US for export to these locations increased 400% between 2008 and 2014 to help meet the increased demand. The US International Trade Commission further states that, “estimates of global wood pellet consumption vary, but are currently in the range of 22 – 25 million metric tons (Mt) annually. This projected to rise to between 50 and 80 million Mt by 2020. At 19 million Mt in 2013, the EU accounted for 85 percent of global consumption of wood pellets.”

This white paper examines some of the challenges around managing and optimizing biomass supply chains and discusses Generation 10’s Commodity Manager as a comprehensive software solution to these challenges.

CTRM as an Architecture

CTRM/CM as an Architecture – An Approach to A 20-year old Conundrum

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Wholesale commodity trading and risk management can encompass any number of business processes and strategies, from brokered trades in which the buyer purchases some quantity of commodity and then immediately resells it at the same point for (hopefully) a profit – to multi-commodity transactions involving global supply chains, transformations, and complex financial hedging strategies. Vendor provided software to service this wide-ranging market, commonly known as Commodity Trading and Risk Management or CTRM software, will similarly vary in possible functional coverage, with some CTRM solutions addressing specific functional components (such as deal capture or risk analysis for a specific commodity), while others will attempt to model and provide wide-ranging functional coverage for all possible commodity classes and the unique physical operations associated with each and every possible combination in between.

Given this, the Commodity Trading and Risk Management (CTRM) software category is very difficult to define except in the broadest of terms. When the term “CTRM” was first coined, it was essentially used to expand the breadth of the software category known as Energy Trading and Risk Management (ETRM). Both terms broadly mean the same thing, with ETRM reflecting software solutions that address the capture, position management and accounting for any wholesale energy trade; and CTRM reflecting a wider reach (including energy in some cases) and encompassing other commodity categories including ags, softs, and metals. In the last few years, CTRM has been increasingly regarded as a component of an even larger software category called Commodity Management (CM), further muddying the classification of the types of software that address the needs of the wholesale commodity marketplace. Commodity Management solutions are most commonly utilized in the mid- and downstream commodity markets, including food processing and packaging companies, agricultural merchants, and manufacturers. Additionally, there are a number of terms used to describe different aspects of Commodity Management such as ‘ERP for Commodities’.

The Era of ETRM in the Cloud

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Commodity Technology Advisory (ComTech) has been tracking the rise of ETRM solutions delivered in the cloud over many years. While the potential benefits and cost savings associated with ETRM in the cloud have always appeared to be robust, uptake across the industry has proven to be quite slow until relatively recently. Although many other industries migrated to the cost efficiencies of the cloud, the energy industry lagged behind. The key concern quoted by the industry was usually data security, despite companies often having back-up and recovery procedures in place that result in trade and position data being stored off-site. Then, commodity prices collapsed generally, led by energy, and costs began to rise inexorably as new regulations progressively came into force. Margins were squeezed and structural changes have occurred across the industry so that profitable trades are a good deal harder to find.

While ETRM and other IT initiatives were put on hold or scaled back to reduce costs, rapid market changes necessitated ETRM functional changes – compelling energy companies to seek more cost effective ways to procure the right ETRM platform. As their ETRM and related solutions have quickly become outdated, these systems are effectively deadweight - holding those businesses back from responding to change and streamlining business processes. In this environment, ETRM in the cloud has become a popular alternative to “traditional” on-premises software given its low cost of entry, potential lower total cost of ownership and promise of cheaper maintenance and upgrades. Confirming this trend, a recent survey conducted by ComTech looking at trends in a lower energy price environment found that around 30% of surveyed European energy traders had an increased urgency to upgrade or replace their current ETRM, and that almost 50% would consider ETRM in the cloud as a way forward.

Prove It or Else - Traceability

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The commodity business has always been fraught with complexity, but under increasing scrutiny from legislators, regulators, consumers, and therefore auditors, that complexity is growing steadily and inexorably. One significant challenge in which complexity is increasing, is the need to track commodities, consumables, and fuels, from source to market. It is no longer the case that buyers can simply pick the best price in choosing a supplier as concerns over issues like food safety, as well as an increasingly savvy consumer that is concerned over abusive labor practices, workers rights, and environmental issues, for example, are increasing the traceability complexity across almost all supply chains.

The recent Trade Facilitation and Trade Enforcement Act, for example, has tightened import controls into the US allowing customs to detain and seize any product thought to have been produced with child labor. The legislation has already been used to detain a shipment entering the US. In order to release a shipment, the owner is required to prove that the custom’s suspicions are incorrect. This is a good example of how a myriad of new rules and regulations are forcing commodity firms to pay much closer attention to traceability. Increasingly, the onus is on the owner of the commodity or product to prove compliance with standards for environment, labor and sustainability etc.

Next Generation Integrated Treasury and Trading for Energy and Commodity Companies

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Commodity markets have always been uncertain and have often exhibited extended periods of volatility. Events such as the collapse of Enron and other marketers, the financial crisis, and more recently, BREXIT, have all had massive impact, and yet, after each event, measures have been put in place, both regulatory and in terms of controls, to protect markets, margins and profits. Each tumultuous event has brought learning, innovation and improvements in business processes. The energy industry has also learned from these experiences; adopting better and improved risk controls, systems and tools to predict, protect and profit. Yet, now may be the time to innovate once again to better protect margins amid increasing costs and lower commodity prices.

Energy producers, traders and consumers today face a challenging trading environment with more regulatory oversight, lower prices, increasing costs and almost constant volatility. As a result forward thinking energy companies are already adopting a more closely integrated treasury and trading approach, a potentially overlooked opportunity by many. Typically, trading and treasury are separate areas of business with limited or no integration between them. The traders work to sell commodities at the best price or to profit from trading, while the treasury function with its concern over available cash, navigating future investments and doing so in the right currency and at the right location, has a range of responsibilities, including FX and IR hedging, broader credit management, debt and capital management and more. Usually, the treasury department gets a fixed time view of trading positions to work with and can miss opportunities to protect profits or control costs as a result as these exposures change rapidly. Even large oil and gas majors have experienced the situation where trading has a good month but FX rates moved against them to give an entirely different result. Despite believing that they were hedged, FX markets went against the company leaving it with significantly eroded traded profits.

New Age Energy Markets - Challenges for Utilities, IPPs and Traders

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The North American power and gas markets are undergoing an accelerating evolution driven by increasing regulation, new and emergent technologies, and a persistent surplus of natural gas brought about by the “shale revolution.” The transformation from a coal-centric power market to one reliant upon renewables and natural gas for baseload power generation has had profound operational and commercial implications for both the electricity and natural gas markets.

Much of the change that has emerged has been catalyzed by regulation at the federal, regional and state levels, including emissions/greenhouse gas regulation and renewable portfolio standards. These regulatory mandates have been largely answered by technology – cheaper and more efficient solar and wind generation, abundant sources of natural gas from long-reach lateral drilling and massive hydraulic fracturing, smart grid technologies that improve grid efficiency and reliability, and more efficient industrial and consumer appliances that reduce system load. In aggregate, these changes have had massive and ongoing impacts across the energy industry in the US, increasing complexity of operations and affecting the business models of many of its participants.

For power utilities, IPP’s and traders, this New Age Energy Market presents a number of challenges that must be addressed to operate profitably.

Responding To Continual Energy Market Change

Responding To Continual Energy Market Change

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The European power and gas industry is currently going through a period of very rapid change that has potentially far reaching consequences. While change is certainly no stranger to the industry, it requires players in the industry to constantly re-evaluate their business process and technology infrastructures in order to adapt and thrive. Examples of the drivers for change include:

- Changes in the regional and national political landscape in terms of both environmental issues and the overall structure of the industry,
- A host of new regulatory and governance regulations,
- Decreased profit margins and,
- Major shifts in all aspects of technology from generation to computing,

Energy companies will need to rapidly respond to these changes and this response will certainly include a review and perhaps upgrade of their Energy Trading and Risk Management (ETRM) and related software.

Deriving Business Value from Big Data using Sentiment analysis

Deriving Business Value from Big Data using Sentiment analysis

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‘Big Data’ are two small words that are widely used to describe the massive growth in data of all forms and that hold; the promise of delivering huge potential business impact. The question is, how?

Today, and increasingly in the future, businesses are surrounded by masses of data and raw information. Some of this data is very relevant but much of it is not. Further, most of that data is unstructured in the form of email, documents, images and different types of social media, blogs, and so on. Unstructured data is notoriously difficult to access and query, it is scattered across many different locations and formats, and it requires some form of preprocessing before it can be analyzed and used. Yet, it is this unstructured type data that is primarily exploding in quantity, representing around 80 per cent of the annual growth of data and doubling in quantity every two years.

A few years ago, ‘Big Data’ was just another buzzword; a fad perhaps that would eventually fade. Today though, big data is increasingly being used to provide deep insight and predictive analysis in to everything from stock market movements to individual buying behaviors. Those that are able to make use and harness the power of this disruptive force in markets will benefit by being smarter, faster and more efficient, meaning they are more likely to seize opportunities early and thereby profit. In the financial services industry, this possibility has not been lost on the banks who along with associated firms, are investing heavily in applying a variety of technologies and approaches to unlocking the value of ‘big data’.

Buy? Build? Why Not Both?

Buy? Build? Why Not Both?

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A recent survey and report by analyst firm ComTech Advisory suggests that a majority of users of ETRM/CTRM software might consider building custom software to meet their business requirements. In fact, around 70% of the survey’s respondents suggested they would consider such an option. As ComTech noted in the report, about 35% of the respondents were representatives of the top tier of the industry who have extremely complex, global, multi-commodity supply chain operations to manage. Nonetheless, given the maturing market for commercial E/CTRM solutions, the idea that anyone would chose to build a solution is perhaps surprising. ComTech concluded that especially in todays’ business environment of rising costs and diminished profits, a more appropriate solution might be to build around a commercially available solution.

This white paper examines the pros and cons of build versus buy while also examining other approaches that in the end may offer a cost effective, yet superior solution. It looks at the Brady cloud offering in particular as a potential starting point for a hybrid solution and examines why a hybrid solution may make commercial and functional sense.

A Managed Services approach to Trading IT Excellence

A Managed Services approach to Trading IT Excellence

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How Delta Energy Supports Its Best-in-Class Trading Operations

Companies that trade, or buy and sell, commodities face a myriad of complex business and technical challenges these days. One typical conundrum is often around Information Technology (IT). A trading firm is, after all, a trading firm and not an IT shop and yet, it needs to have an IT infrastructure, usually a very complex IT infrastructure, in order to conduct its business efficiently. That infrastructure will consist of hardware, networks, mission-critical applications, security, back up, recovery and much, much more. It requires a special set of expertise, both from a technical and a business standpoint, in order to maintain and continually improve it. Such staff is hard to come by and even harder to retain. Meanwhile, regulations and rapidly shifting market conditions mean that infrastructure is getting more and more complex and more and more critical. How is this problem to be tackled and at what cost?

Delta Energy is one company that has solved this problem and gained enormous benefits from its approach in doing so. When Michel Koornstra became head of Energy Trading at Delta, he inherited a very familiar problem to many in the industry. The company was using an ETRM solution that was already 6-years old. “We had workarounds on our workarounds,” he says, and that was only a part of the issue. The support requirements on Internal IT were so high and cumbersome that they didn’t have the luxury of following the ETRM software market. Day-to-day firefighting activities prevented them from utilizing their time around its ETRM software to properly support the best in class trading operation that he wanted to build.

Analytics to Address the Increasingly Complex Global Agricultural Market

Analytics to Address the Increasingly Complex Global Agricultural Market

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There is no single market for agricultural and soft commodities – each commodity has its own unique value chain and combination of production methods, processing/transformations, and consumption patterns; the combinations of which any particular commodity can, and in many cases will, vary significantly by geography.

Prices for these commodities are influenced by weather, input costs (seed, fuel, fertilizer, equipment and labor), changing consumer lifestyles, wealth distribution (both globally and within individual countries), currency values, interest rates, regulations (including impacts of GMO regulations), subsidization, and emerging technologies (such as bio-fuels). Where any particular enterprise falls within the value chain from producer to consumer, the influence and impact of any one or more of these factors will vary.

With the majority of agricultural and soft commodity wholesale prices at or near 5 year lows, and the outlook projecting more of the same, almost all market participants are facing significant challenges in maintaining profitability. From producers to processors, any company that operates in the ags and softs market must remain vigilant and constantly adjust to these rapidly changing market conditions, including uncertainty driven price volatilities, in order to ensure a profitable operation.

CTRM for Sugar – Managing Sugars Complexity

CTRM for Sugar – Managing Sugar’s Complexity

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Sugar is produced in more than 120 countries and global production is now more than 174 Million tons a year. Approximately 70% of this is produced from sugar cane, largely grown in tropical countries, and the remaining 30% is produced from sugar beet, a root crop grown mostly in northern temperate zones. The primary use and market for sugar is the food industry, as sugar is used as a sweetener, preservative, texture modifier, fermentation substrate, flavoring and coloring agent, bulking agent and to add decoration to food items, such as cakes.

This paper looks at this important commodity in terms of its supply chain, markets, price formation and most importantly, unique functional requirements in a CTRM solution. While there are many CTRM software solutions on the market, there are many fewer that can truly handle the unique aspects of sugar trading. The paper identifies the unique characteristics of sugar trading and sugar trading that needs to be included in a sugar-focused CTRM solution.

Evolving CTRM in the Cloud

Evolving CTRM in the Cloud

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CTRM in the cloud was arguably innovated by Aspect (then as OILspace) when it started to deliver data and ETRM software over the Internet using a web browser 15-years ago. The company found a niche market for its software delivered ‘in the cloud’ and has continued to innovate cloud delivery of CTRM software ever since. Over that 15-years, much has changed in terms of technology, including the understanding and acceptance of the cloud, as evidenced by the recent ComTech Advisory research project into CTRM in the Cloud1. Against a backdrop of rising costs and decreasing margins and a requirement to comply with a variety of regulations, CTRM in the Cloud has found a broader appeal in a cost-conscious market and is rapidly gaining ground. Indeed, almost any CTRM vendor will now offer its solution ‘in the cloud’ if asked and a number of other vendors have adopted the cloud model of delivery as their primary focus.

As acceptance of delivery in the cloud has strengthened, so too has appreciation of what the model can actually offer. Users desire greater choice and control in many areas of their business and the technology and service innovation associated with cloud delivery of software generally has brought this to many areas of the business. This would include the ability to pick and chose service offerings and just who manages those services, a variety of attractive hosting models that range from implementation in the public cloud to the customers’ cloud and increased choice in payment options for those services. Cloud strategies are now impacting many IT and project decisions across every area of the business.

As of the end of 2013, when ComTech was undertaking the research for its definitive study, broad deployment of CTRM in the cloud had not occurred and only around 16% of those responding to the study’s survey stated that their CTRM was delivered in the cloud, but more than half stated that it was a consideration in their on-going procurement projects. Since then, we have observed strong growth for the deployment model. However, there remains stoic resistance to CTRM in the cloud in some quarters of our industry. This paper will briefly examine the current state of CTRM in the Cloud and focus on its continued evolution and adoption in the industry.

The Importance of Price Curve Management In A More Regulated Commodity Trading Environment

The Importance of Price Curve Management In A More Regulated Commodity Trading Environment

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In an era of significantly tighter regulation and oversight of commodity markets, forward price curves have taken on a whole new level of importance. Internal and external auditors, as well as regulators, want to be certain that the valuations used to build up financial statements are irrefutable and truly represent fair value based on reliable data. Indeed, several of the regulations now in force also call for increased and better documented risk management processes, including mark-to-market and profit and loss calculations.

Increasingly, funding banks and shareholders also desire increased transparency into risk management for assurances and forward price curves are central to that function. No matter how good the risk management systems are, it is the data that they utilize that is key to good risk management, and market pricing is a key ingredient in that data. Furthermore, the forward curve requirements don’t just impact commodity trading and hedging operations, but also the treasury function.

In a previous paper, Commodity Technology Advisory defined forward curves and looked at their uses and the source of the forward curve data in some detail. In essence, forward curves have three major uses.

Ensuring E/CTRM Implementation Success

Ensuring E/CTRM Implementation Success

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An energy/commodity trading and risk management (E/CTRM) system implementation project is the structured process of taking a newly acquired E/CTRM software product from delivery of code to full “in production” use, and in the process, meeting the business needs that precipitated its purchase.

Implementing an E/CTRM system shares many of the complexities involved in implementing any other enterprise-scale IT system. It requires a comprehensive plan, solid leadership (both executive and project management), specialized technical and business expertise, and a commitment from the software vendor to provide the necessary support to make their new client successful.

However, E/CTRM solution implementations are further complicated by the fact that the E/CTRM product operates not only as the system of record (that is, the system that records, maintains, and accounts for transactions), but it also provides capabilities for managing contracts, trades/deals, logistics, position management, risk management, and associated analytics. A comprehensive E/CTRM system is designed to be a singular system that provides energy and commodity trading organizations the depth and breadth of the highly specialized functionality their businesses require. As such, E/CTRM systems are extremely complex and require detailed knowledge of the business combined with a deep understanding of the software capabilities to properly implement. ComTech Advisory’s experience and research suggest that the effort required and the risks involved in implementing and integrating a sophisticated, configurable enterprise-scale E/CTRM solution are of ten poorly understood by the client and may be minimized (though not necessarily intentionally) by the software vendors during the sales process. Underestimating the real costs and project risks can quickly turn what would otherwise be a “bargain” software package into a long-term, costly headache. All things being equal, when it comes to E/CTRM software, the lowest priced solution may not necessarily be the right solution.

Addressing the Decline - Finding the Silver Lining for Producers

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From around 2005 to early 2014, the revolution in North American oil and gas production, spurred by the development of long reach horizontal drilling and massive hydraulic fracturing technologies, attracted billions of dollars in new capital to the space – fueling huge growth in drilling activity, oil and gas production, and in the numbers and size of oil and gas producers operating in the space. However, with the sudden collapse of oil prices (beginning in the third quarter of 2014, which saw the value of crude decline by more than 50% from its high in July of that year), the inflow of capital has shrunk, and with it, the expansive growth in the producer market. While the collapse in the oil markets has had far reaching impacts across the global economy, nowhere are the consequences more greatly felt than in the North American oil and gas fields.

With this low price environment extending for almost a year now, US and Canadian producers have slashed drilling and exploration budgets and are cutting costs to preserve cash in order to ensure their survival. Companies that had principally relied on debt financing to support their drilling activities have been particularly impacted and many are struggling to meet debt payments, forcing liquidation of assets as bankruptcies loom. The upstream market is seeing the beginning of a wave of mergers and acquisitions as the stronger producers, those that funded their activities through generated cash or retained earnings, are now looking for bargains amongst the weaker.

European Power Markets in Transition

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With European energy markets in transition, all market participants now face a number of potentially tricky challenges. A combination of EU initiatives, increasingly invasive regulations and a backdrop of falling and less volatile commodity prices, have precipitated an era of change and uncertainty in which there are fewer trading opportunities and profits are harder to come by.

Analysis of the trends and issues impacting European energy markets strongly suggests that these markets are becoming increasingly asset-centric and that the winners will ultimately be those companies that can utilise their assets most effectively. Powel thrives in helping companies extract more value from their complex energy assets and portfolios using its expertise in optimisation, modelling, logistics and trading and is ready to rise and respond to these challenges.

Value Study: Investing in E/CTRM in Turbulent Times

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The only constant is change echoes an astute observation by the Greek philosopher, Heraclitus, some 2,500 years ago. Those of us who are engaged in the world of commodities are continually reminded of the accuracy of his observation, particularly recently, as commodity prices collapsed led by crude oil. In fact, our industry is continually impacted by changes in the regulatory environment, supply/demand balance, global economic environment, technology developments, political intervention and more.

Recently, BP noted in its annual Energy Outlook1, “Today’s turbulence is a return to business-as-usual. Continuous change is the norm in our industry. The energy mix changes. The balance of demand shifts. New sources of energy emerge, such as shale gas, tight oil, ultra-deepwater oil or renewables. Economies expand and contract. Energy production and consumption are affected by disruptions, from wars to extreme weather. New policies are created to address climate change or bolster energy security.“

Change is the very lifeblood of the commodity trading world, creating opportunities for profit for those who are swift and responsive enough to act. Good traders make money in up or downwards moving markets, provided they are armed with up-to-the-minute data and the analytical tools needed to identify, analyze and manage their trading decisions. However, depending on market direction, other market participants might be caught in a more problematic situation and experience cash flow and/or profitability issues should price movements undermine their naturally long (producers) or short (consumers) positions. Nonetheless, if the company has the right tools at its disposal to track up-to-the-minute changes, and properly and effectively manage its exposure to those changes, then value can be protected and in some situations, profits might be made.

Managing Forward Curves in a Complex Market

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Any company that owns commodities, either through production or merchant activities, needs to know not only the current value of those commodities based on market prices, but also needs to develop a view of the future value of those commodities during the time that they are projected to be held in inventory. Additionally, agreements to purchase commodities in the future must be accounted for, not only at their agreed or projected purchase price, but also during their anticipated holding period.

Commodity prices are constantly changing and are driven by market forces that are virtually impossible to predict with any degree of certainty. As such, accurately forecasting costs and price exposures is difficult at best, and particularly so now, given the rapidly changing supply and demand patterns that define the global commodity complex. Huge growth in demand for all commodities in Asia, the rapid rise of agricultural exports from developing countries in the Asia-Pac region, and the shale revolution that is driving unprecedented growth in US oil production, are all examples of the new dynamics that have fundamentally altered price formation in markets around the world. In this globalized and increasingly interconnected market-place, which is being constantly buffeted by economic uncertainty, predicting future prices is more difficult, but perhaps more important, than ever.

Commodity Management and ERP

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Over the last several years, the phenomenal growth and expansion of wholesale commodity trading has begun to have a significant impact on both business practices and strategic thinking across commodity supply chains. Producers and processors of raw materials (commodities) and sellers of finished goods that rely heavily on commodity feed stocks have had to come to terms with a business environment of generally increasing and significantly more volatile prices for their raw materials. Despite some weakening in commodity prices on the back of a stronger dollar and increased supply recently, volatilities remain problematic and in the longer-term, prices will continue to increase as the global population continues to grow and as more of that population become consumers of goods.

Recently, many of the larger banks have begun to exit commodities trading under fire from various regulators and a set of new regulations. Their position has arguably been taken up by large commodity trading firms, with companies such as Glencore, Mercuria, and others expanding their operations and filling much of the liquidity vacuum left by the exit of the banks. These large commodity traders have also experienced much thinner trading margins and have increasingly sought to secure physical commodity supply by purchasing producers and their assets in order to de-risk a portion of their supply chain. In the future, the boundary between producer and trader may be increasingly blurred.

Is Now the Time for Open Source in CTRM

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In this ComTech Advisory White Paper, we take a look at the concept of Open Source software in commodity trading. In doing so, we are asking the question, why has this approach not yet been tried? And if it were to be tried, would it help? The white paper is really designed to foster debate around the topic as opposed to take a stance on the issue one way or the other. Acutely aware of the many challenges facing both users and vendors in this fast moving and complex business, ComTech Advisory is always interested in pursuing research into how technology adoption might be improved. The question posed by this white paper is simply this – Is now the time for Open Source CTRM?

Here we are in 2014, almost 20-years after the ETRM and later, the CTRM, software categories were ‘invented’ and in some ways, very little has actually changed. Yes, there has been some vendor consolidation, but for every vendor and solution that has been acquired or gone out of business, at least one new supplier has consequently emerged. We seem to have been writing that ‘there are over 70 vendors of E/CTRM software’ for the last 10-years at least and it’s true – there really are that many in the CTRMCenter software directory. In fact, we have found and added 3-4 new ones this year alone!

Taking the Next Step in CTRM Cloud Solutions

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In the last decade, a quiet revolution has occurred within the E/CTRM (Energy/Commodity Trading and Risk Management) software category as vendors and users have increasingly adopted the cloud-computing model. This move has been driven by demand largely for more affordable E/CTRM software as reflected by a lower total cost of ownership. Increasing regulatory and shareholder scrutiny has meant that even smaller commodity traders need to abandon spreadsheets and similar unstructured and difficult to audit tools in favor of more robust solutions. However, even the smallest of commodity trading companies has pretty broad and complex requirements meaning that they actually still require a fully-fledged application to meet their needs, but one that fits within a budget that reflects the size of their business.

In recent years, consumer and business cloud-based applications have begun to catch on and that familiarity does seem to have benefited the E/CTRM in the cloud market as well, as customers are now much more familiar with the benefits than they were 5 years ago. It is important to note that it’s not just the smaller commodity traders that see the potential benefits of a cloud-based solution either. Recent ComTech research suggested that, in general, all buyers of E/CTRM software are increasingly open to considering alternatives to the traditional “on premises” implementation model. While a small, but committed, minority continue to resist anything but the traditional on-premises implementation approach, the overwhelming majority of respondents will consider cloud deployment for a variety of vertical application areas in and around commodity trading.

Uncertainty is Clouding the Energy Trading Outlook

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As the United States continues to rapidly grow its production of oil and gas from shale, and Canada increases production from its oil-rich tar sands, these new volumes are helping to support world oil markets as crude production outside the US declines due to increasing conflict in the Middle East and North Africa. Should these conflicts widen, the global markets will be increasingly volatile as supply disruptions outpace the growth in North American production.

Though US natural gas production has not yet impacted the global market space via LNG exports, there is no doubt that those exports will happen. While the impact on US prices is unclear at this time, these exports will be yet another variable with which to content in a US market already unsettled by increasing regulations that will, by design, reshape the US energy mix.

Dealing with this uncertainty will require increasing market vigilance, with a constant view on both the near and longterm energy outlook, and supported by a commodity trading and risk management solution that facilitates analytics, market visibility and regulatory compliance, such as Eka Energy.

What Does Tomorrows CTRM Look Like?

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The $1.6 billion Commodity Trading and Risk Management (CTRM) software category continues to change and evolve rapidly, driven by the many and varied issues that those in commodity industries face. Today, the CTRM software category is being forced to move from one that is mostly about managing trading transactions after the fact (capturing volume and price, managing the delivery and then producing an invoice), to something dramatically different.

Multiple issues now face those operating in the commodity industries and the confluence of these issues is driving many of the changes in CTRM software. For those who need to manage physical commodities and their supply chains, the issues are magnified further due to the complexity of tracking and managing those physical commodities with stock, quality characteristics, paperwork, movement and much more. There is more data, more regulation and more risk. CTRM software must incorporate much more functionality to support the modern supply chain.

Making more of data using ai

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Commodity traders now have access to a wide and increasing number of data sources and significantly larger volumes of data of all types. New regulations such as REMIT, for example, that are designed to increase market transparency and reduce possible market manipulation, ensure that many more new types and sources of important data are now generally available. A recent proprietary survey conducted by ComTech Advisory on behalf of DataGenic1 concluded that for around half of those surveyed, the volume of data they have to deal with has almost doubled over the last two-years. Commodity traders will need to cope with and manage, an ever-increasing amount of data in the future.

Social media has also become a very popular medium over the last several years and arguably, it is increasingly a relatively untapped source of potentially useful intelligence for commodity and other traders. Social media outlets such as Twitter2 and the blogosphere are increasingly being utilized in other asset classes to provide traders with trading indicators and sentiment analysis. However, can social media really have any value for commodity traders and how are useful signals to be extracted from among all of the daily noise from such sources?

RPS and RECs - Managing an Increasing Regulatory Burden

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Renewable energy certificates or ‘RECs’ have become the currency of the renewable or green power industry, allowing power providers to expand their product offerings and offer ‘green’ power irrespective of whether or not they can physically generate it. Consumers can also be assured that should they choose to buy renewable power, in support of the renewables suppliers servicing the market, that the power they use has either come directly from a renewable generator, or if a renewable generator is not servicing their facility, that it is offset in the market by power from a renewable source, such as wind, solar or hydro, in another geographic area.

Essentially, as described by the US EPA, a “REC represents the property rights to the environmental, social, and other nonpower qualities of renewable electricity generation. A REC, and its associated attributes and benefits, can be sold separately from the underlying physical electricity associated with a renewable-based generation source.”1 It is the separatability from the underlying physical electricity that actually creates the value and benefits for both the producer of green power, whose investment is supported by selling RECs, and consumers who wish to enjoy the benefits of green power but who may not have direct access to renewable power due to their physical locations.

The Evolution of Smart Commodity Management

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Over the last twenty or more years, global wholesale commodity markets have grown and evolved substantially and in the process, a sizeable new software category has been established. That software category is widely known as Commodity Management (CM) software and, at the highest level, it can be defined as those software applications, architectures and tools that support the business processes associated with managing commodities. CM software therefore comprises a broad set of functions that can vary considerably depending on which commodities are traded, what assets are employed in the business, where those assets are located, and what the nature of the company’s business strategy and associated business processes. CM software continues to evolve quite rapidly in lockstep with the industry. In past years, CM focused squarely on trading and risk management as CTRM software, but in recent years it has been extended into the supply chain with solutions such as shipping and stockyard bulk handling, for example.

As the software category has evolved, so has the volume and nature of the data that the software captures, manipulates and stores. Today, big data is an increasingly important aspect of the commodity management world as vast quantities of many types of structured and unstructured data potentially hold the key to profitability and even survival of companies that sell or purchase commodities and raw materials. As a result, the requirements that users place on CM software are also changing from essentially an after the trade recording and reporting system, to one that provides real intelligence and value back to the business.

Consumer Product Companies Smart Commodity Management

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Rapid global population growth combined with increasing urbanization is driving demand for raw materials of all kinds. By 2030, it is estimated that there will be 1.4 billion middle class consumers in China compared to 365 million in the US and 414 million in Europe1, placing increasing strains on the supply and distribution of raw materials and finished products. For the last five or more years, commodity and raw material prices have been extremely volatile, in part due to supply/demand tightness, and this paradigm is one that is set to continue in to the future. For consumer product companies, these facts represent a significant challenge and risk to their businesses.

Consumer product companies, faced with volatile raw material and energy costs on one side, and price conscious customers willing to shop around on the other, have sought ways to minimize these risks. They have stripped costs and inefficiencies from their supply chains and businesses and, in some instances, radically overhauled the way in which they manage the procurement and planning functions in favor of a commodity management approach. Commodity management means approaching price exposure more like a trader tracking price movements, utilizing hedging and other risk mitigation tools and measuring performance against market as opposed to budget or forecast. Some companies have deployed commodity management software, fully integrated with their ERP and other systems, to manage supply chain price exposure.

Next Generation CTRM

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Commodity markets may well now be at an important crossroads in their evolution. Always risky and intricate, trading, procuring and/or selling commodities, is increasingly more complex and becoming even riskier. For those engaged in commodity markets, there has always been a need for flexible and configurable CTRM software to cater for the rapidly changing nature of the business. Unfortunately, most traditionally implemented on premise CTRM software solutions are suboptimal in terms of keeping current with new business challenges. Often the solution also carries a high cost of ownership as this traditional development model can mean months, if not years, between the emergence of a new requirement and the delivery of the matching functionality. New models are now emerging that utilizes the Cloud from new vendors who, familiar with such issues, have innovated different approaches that hold much promise for users. This white paper examines how the industry is changing and why legacy CTRM software and the traditional models of development, implementation and support are problematic for users. It reviews the emergence of new technologies and delivery mechanisms and contrasts how these solutions may prove to be more responsive to industry needs in the future.

Reports

2016 – 2021 CTRM Market Outlook

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Commodity Technology Advisory LLC (ComTech), the leading analyst firm covering commodity trading and risk management (CTRM) technology markets, has recently completed its biannual in-depth review of the CTRM software market space in order to compile an estimate of the size of the global CTRM technology market and prepare an outlook for growth across the various component submarkets that comprise it.

Readers of this report should be aware that in the development of this data, as in past years, we must delineate boundaries for the companies and applications reflected in the scope of the analysis.

Purchase the full version 2016 – 2021 CTRM Market Outlook

Sourcebook 2017

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The 2017 Commodity Technology Advisory LLC (ComTech) CTRM Software Sourcebook is designed to be a useful and usable resource to help those seeking information as to the capabilities and coverage of products within the CTRM software category. It is a starting point in the product selection process - a mid-level guide to allow the reader to develop a long list of vendors that have high potential capabilities in terms of functional and commodity coverage meet the specific needs of CTRM market participants.

It is NOT intended to be a replacement for a formal selection process - CTRM software is simply too complex to be selected properly without utilizing a programmatic selection process.

Our intention in developing the CTRM Sourcebook is to inform the reader of the wide universe of vendors and products, and allow companies seeking a new system to compile a list of vendors that may include some that might not have otherwise been considered, or that they may not have even previously been aware of.

ComTech Analyst Briefing Note – EKA Update 2017

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Eka recently announced their 2016 year end results, providing the opportunity to review the company’s progress in developing and marketing its Commodity Analytics Cloud, a new product announced in 2015. Additionally we will also review the company’s overall performance since our last full update, released in November of 2014.

For a more complete coverage of Eka, see our analyst briefing note released in July 2015 for detailed review of the company’s Commodity Analytics Cloud. Also see our ComTech Analyst Briefing Note released in November 2014, for a complete corporate overview, strategy discussion and products overview by ComTech analysts.

ETRM in a Low Commodity Price Environment

ETRM in a Low Commodity Price Environment

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The collapse in wholesale energy prices, which began in earnest mid-year 2014, has resulted in a prolonged period of declining profits, declining trading volumes, bankruptcies in the up-stream markets, and a general malaise in the global wholesale energy markets. Though low prices are a benefit for consumers, this period has been extremely challenging for many in the energy industry, particularly those that produce and trade energy commodities.

Though oil prices have recently begun to rise off their 13 year low set in January of 2016, other energy commodity prices, such as power and natural gas, continue to be moribund – in a persistent oversupplied condition and with unpredictable volatilities. Given these conditions, Commodity Technology Advisory, with the support and coordination of study sponsors FIS and Capco, sought to examine the impact on the usefulness, utility, and capabilities of Energy Trading and Risk Management (ETRM) systems to improve financial performance and profitability, mitigate risks, and help find market opportunity for companies that operate in this difficult market.

This new research looks at the impacts and implications of low-priced energy commodities as they relate to the key technologies used to trade, manage, value and account for those trades. These ETRM systems, though vital to the industry, will vary in their utility and value among users depending on the scope, scale and age of those systems. While not seeking to quantify these potential differences, we did want to examine the implications of the current low price environment on the value and usefulness market participants assign to those systems and understand the impacts on those technology users as this low price condition persists.

CTRM Vendor Perceptions 2016

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Commodity Technology Advisory’s 2016 Vendor Perception Study was conducted to establish end-user views and perceptions of available CTRM vendors and products, including brand awareness, and to determine market leadership perceptions as well as buying criteria and demand levels. The research, conducted via a web-based survey, was comprised of a comprehensive set of questions that sought the informed views of industry participants including end users and consultants. Vendor personnel were specifically excluded from participating in this research. The survey was open for responses between January 14th and May 3rd, 2016 and collected some 230 gross responses.

The survey was promoted in several ways to attract bone fide respondents. ComTech Advisory used email notification, blog articles, web advertising and verbal requests to encourage participation. CTRM vendors and service providers also promoted the survey of their own accord.

2016 CTRM Market Update

2016 CTRM Market Update

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Given the significant decline in commodity prices throughout the year in 2015, and impact that decline has had on the markets for CTRM/ETRM software, Commodity Technology Advisory LLC (ComTech) has recently completed an interim update to its biannual in-depth review of the CTRM software market space. This update is based upon an analysis of reported vendor results for 2015 and confidential conversations with several of the larger CTRM vendors regarding financial performance, unannounced deal closings and deal flow. Additionally, our analysis has factored in trends in the job market created by CTRM software and other sources of data.

Please note: This interim analysis is a topside adjustment to previously published forecasts and is not a comprehensive top-down analysis of the market as presented in our biannual CTRM Market Trends and Outlook publication.

CTRM for Agricultural and Soft Commodities

CTRM for Agricultural and Soft Commodities

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The CTRM software space for agricultural and soft commodities is currently characterized by the existence of many software vendors and products that are largely dominant only in a specific niche market, such as a particular geographic region and/or for a particular commodity. Commodity Technology Advisory (ComTech) can identify at least 34 potential vendors with products in the space that fit this description; and to that end, it is reminiscent of the ETRM software category a decade or so ago, prior to all of the merger and acquisition activities, that has resulted in some consolidation there.

The scope of this research project was to identify and characterize the Commodity Trading & Risk Management (CTRM) products in the agricultural and softs space, identify the key markets and software requirements needed by those markets, and comment upon perceptions of the vendors and products targeting those markets.

Furthermore, several trends have emerged in the agricultural and softs application software space that this research investigated in a little more detail. The first of these trends is around “commodity management” (“CM”), the extension of CTRM software into aspects of what has traditionally been covered either by ERP solutions or in combination with ERP and specific point solutions covering a unique facility or process. However, with the growing presence of commodity management solutions, there is an increasing overlap in parts of the market as ERP solutions are extending into trading and risk management, and CTRM products are being extended into ERP, particularly in commodities that have a long and complex supply chain. This research reviews this trend, including the vendors and products in the space.

E/CTRM Software – To Build or Buy? That is The Question

E/CTRM Software – To Build or Buy? That is The Question

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With around 90 or more software vendors offering a variety of commercially available solutions in the area of ETRM and CTRM software and a history of commercial solution development going back 20 plus years, the idea of building a custom solution might seem something of a throw back. However, the truth is that the commodity trading business and its requirements can change so quickly that for large or complex, cross-commodity businesses, internal development of a custom solution can hold some attraction. There simply isn’t yet a commercial solution in the marketplace that can do everything for every commodity in every geographic location and do it well.

As a result of this, and having detected what seemed to be a bit of a trend back towards building custom solutions in the top tier of the market, Commodity Technology Advisory (ComTech) set out to survey the market in an attempt to see what the drivers around build and buy were. The survey was designed as a short surveymonkey.com survey (appendix A) and it was available for users to complete for an extended period between August and November 2015. Various methods were used to solicit responses including emails, banner advertising, blog articles and so on. Although more than 100 replies were received, only 59 were considered to be valid and usable responses and only those responses were used in the developing the results presented below.

sourcebook 2015

Sourcebook 2015

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The 2015 Commodity Technology Advisory LLC (ComTech) CTRM Software Sourcebook is designed to be a useful and usable resource to help those seeking information as to the capabilities and coverage of products within the CTRM software category. It is a starting point in the product selection process - a mid-level guide to allow the reader to develop a long list of vendors that have high potential capabilities in terms of functional and commodity coverage meet the specific needs of CTRM market participants. It is NOT intended to be a replacement for a formal selection process - CTRM software is simply too complex to be selected properly without utilizing a programmatic selection process. Our intention in developing the CTRM Sourcebook is to inform the reader of a wide universe of vendors and products, and allow companies seeking a new system to compile a list of vendors that may include some that might not have otherwise been considered, or that they may not have even previously been aware of.

The product functionality and commodity coverage charts are easily readable and provide mid-level information about each vendor’s product capabilities.

ComTech’s methodology for constructing the Sourcebook was to distribute a spreadsheet and questionnaire for data collection. The majority of all vendors in the space were invited to submit their information for publication. Those that did wish to participate completed the entire questionnaire, including identifying by commodity and function (or feature) whether their software had 1) capabilities that were in use by a current user, 2) capabilities not currently used by a client or 3) provided no capabilities in each function/commodity combination. These were reviewed and edited by ComTech to ensure all vendors conformed to the same standard, and adjustments were made to some vendor responses to ensure consistency amongst all respondents. The information submitted by the vendors was used, in large part, to complete the vendor/product listing, along with information collected in other ComTech surveys and research. The final listings were compiled by ComTech analysts.

Each Vendor and Product listing is arranged according to the same format for clarity and ease of use. Each listing (sorted alphabetically by vendor name) is comprised of:

  • The name of the vendor and contact information
  • A graphic showing the distribution of current clients by geography
  • A graphic showing client distribution by common industry segment
  • ComTech Advisory research highlights regarding the vendor and product,
  • A graphical matrix providing an overview of the product's capabilities, by function (vertical axis), by commodity (horizontal axis),
  • Company and product information comprised from a variety of sources including vendor’s submitted company and product description,
  • Vendor’s office locations,
  • Total installed base by licensed customer companies,
  • A representative list of users of the product,
  • Deployment methods of the highlighted product(s),
  • Office locations and contact phone numbers.

For information on CTRM vendors that elected to not participate in the production of this SourceBook, please visit www.CTRMCenter.com/ctrmdirectory/

European Regulations – REMIT Reporting Services and Solutions

European Regulations – REMIT Reporting Services and Solutions

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Last updated March 2016

The Regulation of the wholesale Energy Market Integrity and Transparency (REMIT) came into force in December 2011, twenty days after the “Level 1” text was passed by the European Parliament. The main purpose behind REMIT is to outlaw market abuse in the wholesale gas and power market in Europe. REMIT is part of the “third package” of rules that are intended to move the EU towards a single wholesale market.

REMIT applies to all physical and financial trades, and also includes LNG where the supply is intended for the EU network.

Anyone who executes a trade for delivery inside the EU is subject to the rules, no matter where in the world they are based. In this sense REMIT is distinct from many financial regulations. REMIT is enforced by National Regulatory Authorities (NRAs), who are local energy regulators. For example, Ofgem enforce REMIT in the GB market using specifically drafted UK regulation which has extended their powers of enforcement (Northern Ireland is covered by the “Utility Regulator”). The entire effort is coordinated on an EU wide basis by ACER, the Agency for the Cooperation of Energy Regulators.

Analyst Note - Eka Commodity Analytics Cloud

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Eka recently announced a new product line, separate and apart from their other product offerings based on the InSight CM platform. This new product, Commodity Analytics Cloud, does represent a departure from other commodity management products on the market and we believe it potentially represents a new software category within the CTRM marketplace. As such, we are providing this Analyst Briefing Note update to provide some of our early views.

For a more complete coverage of Eka, including a corporate overview, strategy discussion and products overview, by ComTech analysts, please refer to our most recently updated ComTech Analyst Briefing Note released in November 2014.

Eka recently announced the release of a new product that it terms the Commodity Analytics Cloud. According to the company, the goal of the new application is to accelerate information flow and analysis for commodity trading and commodity management companies. The solution crosses several categories of technology and software, including integration solutions, BI tools, analytics, Big Data solutions, data cubes and cloud offerings; and as such, it’s a product that is difficult to slot in any single existing solution category.

2015-2020 CTRM Market Outlook

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Commodity Technology Advisory LLC (ComTech), the leading analyst firm covering commodity trading and risk management (CTRM) technology markets, has recently completed its biannual in-depth review of the CTRM software market space in order to compile an estimate of the size of the global CTRM technology market and prepare an outlook for growth across the various component submarkets that comprise it. Readers of this report should be aware that in the development of this data, as in past years, we must delineate boundaries for the companies and applications reflected in the scope of the analysis.

‘CTRM’ is a term that has been widely adopted by many technology companies. “Traditional” CTRM vendors have been expanding their reach outside of what has been widely and traditionally accepted as core CTRM through acquisition of applications that would commonly be viewed as tools for managing and optimizing supply chains and as such, without adjusting vendor reported results to eliminate these non-CTRM capabilities, we would be overstating the size of the market directly related to commodity trading and risk management capabilities. As such, for this report, ComTech has utilized a fairly rigid view of what capabilities are encompassed within the bounds of CTRM.

The Use of Spreadsheets in Commodity Trading – 2015

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Spreadsheets have long been an integral part of a trading company’s armory of tools and software. Over the years, the demise of the spreadsheet in commodity trading organizations has continued to be predicted with increasing frequency and regularity, and yet, the spreadsheet is alive, well, and kicking in 2015; as this survey proves. Despite the growing maturity of commercially available Commodity Trading and Risk Management software (CTRM) solutions, the increase in regulation and oversight and, the alarming number of horror stories involving spreadsheets in losses, mistakes and fraud, they seem difficult to eliminate. This survey, prompted by current round of regulation and controls, revisits the spreadsheet in commodity trading to discover how widespread and pervasive they are and why.

The survey was conducted as an electronic questionnaire promoted via Commodity Technology newsletter and other email lists as well as on social media and the CTRMCenter website. It received 133 responses between early November and mid-December, 2014, which after eliminating incomplete responses or those submitted anonymously, was reduced to a set of 50 valid responses from identifiable participants. The distribution of the valid responses was primarily from Europe and North America and from across the entire commodity trading sector.

Allegro CTRM Value Study Report 2014

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The environment of physical energy and non-energy commodity trading and marketing has grown increasingly complex, marked by globalization bringing about rapid changes in supply and demand patterns, increased regulatory scrutiny and evolving trading and reporting rules, volatility along the entirety of the physical supply chain, and increasing uncertainty as to future price movements. In order to react to these changes quickly and appropriately, participants in these markets must increasingly rely on a sophisticated infrastructure of software and technologies to ensure a complete view of their trading positions and external market conditions that can quickly and severely impact their values. The core component of these now requisite trading and marketing technologies are energy and commodity trading and risk management (CTRM) systems.

As market complexity has increased and multi-commodity trading has become more common, CTRM solutions have had to become more sophisticated and provide a greater depth of capability in order to capture and value the unique characteristics of the multitude of physical commodities being transacted along the physical supply chain, from source to market. Given the capabilities of these CTRM systems, they do represent a significant investment for any trading or marketing organization, generally trailing only the large scale ERP solutions, like SAP, in terms of costs to purchase and implement.

Allegro Development, one of the world’s largest CTRM solutions providers, engaged Commodity Technology Advisory to conduct a survey of a number of their clients to determine their views as to the value of their investment and the operational and financial impacts of deploying Allegro’s CTRM solution.

This report summarizes the results of that survey and discusses the key considerations for any company seeking to develop their own assessment of the value of their CTRM technology investment via a Return on Investment (ROI) calculation.

ComTech Analyst Briefing Note – EKA Update

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Eka has continued to grow and at a rate that places them in the upper echelons of the Commodity Trading and Risk Management (CTRM) vendor group and has found considerable success in selling products to a global base of users across multiple categories, including agriculturals, softs, metals, consumer products and most recently, energy. The company has embarked upon an aggressive growth strategy, expanding their functional coverage via internal development and measured acquisitions, allowing the company to better compete not only in the traditional single or multi- commodity trading and risk management opportunities that arise in around the globe, but further positioning the company to address the lucrative commodity management, or CM, markets.

Given the increasing globalization of the commodity markets, shifting supply and demand patterns, and global economic uncertainty, ComTech believes that advanced analytics will be an increasingly important component of the next generation of solutions for commodity traders, commodity consumers and the broader CM market. With Eka’s focus on advanced analytics as an integral component to their solutions, they appear to be well positioned to execute on their vision of the next generation of commodity management solution, termed “CM 3.0” or “Smart Commodity Management.” The company is well funded and has an experienced leadership team in place. Given the genesis of the company in the agricultural markets and success in metals, and with the recent acquisition of the EnCompass product (an energy centric solution), Eka would appear to be well positioned to attract and successfully service new CM 3.0 customers in the agricultural trading, metals and mining, consumer package goods (CPG), food processors and North American energy markets.

Analyst Briefing Note Brady

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Brady PLC (Brady) has provided trading and risk management solutions into the metals sector since its inception in 1985 listing on the AIM (the junior London Stock Market) in 2004, In 2007, the company brought in a new management team headed by CEO Gavin Lavelle and that team has proven successful in executing the company’s strategy of growth via organic development supplemented by acquisitions. Over the last several years, the company has gone from strength to strength, broadening its product range and expanding into new commodities, markets and geographies.

Brady is the largest Europe-based Energy and Commodity Trading and Risk Management (ECTRM) vendor and is regarded as the leading vendor in the metals sector. However, it also offers a number of CTRM and related solutions for global energy, ags and softs and is the market leader in North American recyclables. Its offerings in trading and risk management are designed to enable producers, consumers, financial organizations and trading companies to manage all of their commodity transactions in an integrated solution - including pre-deal analysis, trade capture, risk management, foreign exchange, credit risk, logistics, cash management, physical operations, settlement, back office, financials, accounting and treasury.

With more than 300 customers worldwide, Brady ranks amongst the top five vendors of CTRM solutions, and is the only currently publically traded CTRM vendor, providing the company access to a variety of institutional investors and funding with which to continue to pursue strategic acquisitions and further invest in its technology and products. Brady has been consistently profitable and maintains a strong balance sheet.

Analyst Briefing Note Aspect Enterprise Solutions

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Aspect Enterprise Solutions (Aspect) was founded as OILspace in 1999 and delivers commodity trading and risk management (CTRM) and trading operations solutions to a global base of users across multiple categories, including petroleum products, crude oil, metals/steel, coal, petrochemicals and agricultural commodities.

Incorporated in the USA and headquartered in London, UK, the company launched with fully web- based solutions, and is recognized as one of the first to employ a truly multi-tenanted cloud delivery model for its products. In addition to its CTRM solution, the company also provides real-time and historical data feeds and trade decision tools for traders via its AspectDSC (Decision Support Center) product line. AspectPM is its price manager solution, providing consolidation and support for the global oil price forecasting process and forward curve management. The company sells its products globally, with clients located in all geographies. Aspect has been particularly successful in selling its solutions into the mid and lower tiers of the market and to those companies that have adopted the solution as their first commercially supplied and supported trading solution. Geographically, Aspect has become the leader in vendor-supported solutions for Africa.

CTRM Vendor Perceptions

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This 2014 CTRM Vendor Perception Study has been developed to provide insights into how the users, buying decision makers, and consultants that make-up the CTRM marketplace perceive the landscape of companies that produce and sell CTRM/ETRM products.

But, why is this important?

Vendors spend significant sums creating brands and trying to familiarize potential buyers with their products and capabilities; and via that process, work to establish a positive reputation in the market. Buyers will use their familiarity and perceptions of those vendors when making decisions as to which vendors and products to include in a purchasing process. Past research by the authors of this report indicate that buyers will initially use two sources of information when considering which system to purchase: 1) their personal knowledge and experiences of having previously worked with a vendor or software package, and 2) the knowledge, experiences and opinions of their peers in their industry.

Consultants and Systems Integrators List

Consultants and Systems Integrators List

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Very often, Commodity Technology Advisory is asked about Consulting Firms and Systems Integrators in the ETRM and CTRM space. Often, people are looking for a company in a specific location or with a specific skill set. In response to these inquiries, ComTech has compiled the following list. This is just a list - it is not meant to be anything more than that. Nonetheless, we do hope that you find it helpful.

If your company is not included in this list and you would like it to appear in future versions, please email us at info@comtechadvisory.com and we will gladly include you.

CTRM in the Cloud

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The data generated by our survey of the industry suggests that, in general, Energy and/or Commodity Trading and Risk Management (E/CTRM) buyers are increasingly open to considering alternatives to traditional “on- premises” implementation models including both SaaS and hosted in the cloud delivery. While a small, but committed, minority continue to resist anything but the traditional on-premises implementation approach, the overwhelming majority of respondents will consider SaaS/hosted in the cloud for a variety of vertical application areas in and around commodity trading.

Despite that finding, only 16% of those who responded to the survey actually utilize a SaaS or hosted in the cloud E/CTRM solution, and while the data strongly suggests a great deal of interest in the cloud for E/CTRM, it does indicate that the final procurement decision isn’t necessarily a slam-dunk in favor of the cloud. Though 54% of our respondents would consider a SaaS/hosted in the cloud alternative, there are indications that the final decision is still more likely to lean toward a traditional installation on-premises – at least for now. ComTech’s forecast growth rates of 15% per year for SaaS/hosted in the cloud solutions do seem to be reasonable but may accelerate in the future if a sufficient numbers of trading firms adopt the model, are successful with it and are willing to advocate the approach to their peers in the industry. Overall, this finding is in agreement with broader studies such as those conducted by Gartner that found that interest in cloud-based solutions is primarily in horizontal applications such as accounting, HR or billing; and that as a result of buyer concerns around integration and ability to customize, the uptake of cloud-based vertical applications like CTRM lags somewhat.

European Commodity Market Regulations Part 2

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A component of the European Regulatory study conducted by ComTech advisory and ETR Advisory was to survey the market regarding overall preparedness for the regulations. The following report outlines the results of that survey providing analysis and discussion of those results. It should be read in conjunction with Part 1 of our study, which is available for download at http://www.ctrmcenter.com/publications/reports/european-commodity-market-regulations/

The survey was conducted from August 7 to November 25, 2013. We used email requests, direct calling, articles, blog articles, and website pop ups and banners to drive responses as well as asking vendors in the space to solicit responses from their clients. Despite this and the length of time that the survey was open, we experienced a very poor rate of response and in the end; we managed to collect some 42 responses in total but eliminated 11 incomplete or invalid responses to be left with 31 usable responses. Software vendors and/or consultants submitted the responses deemed to be invalid, or the responses had missing or invalid email addresses that prevented validation of the identity of the respondent.

In order to increase the number of survey responses, we also used telephone interviews entering their responses ourselves and omitting to record their contact details. In this way, the anonymity of the respondent was guaranteed; however, we knew the responses to be valid for the purposes of the study.

Market Sizing 2013

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Commodity Technology Advisory (ComTech), the leading analyst firm covering commodity trading and risk management (CTRM) technology markets, has recently completed an in-depth review of the CTRM market space in order to compile an estimate of the size of the global CTRM technology markets, and the results of this analysis and review are included in this report. Readers of this report should be aware that in the development of this data, we have had to necessarily delineate boundaries for the companies/applications that are reflected in this scope of the analysis. ‘CTRM’ is a term that has been widely adopted by many technology companies. “Traditional” CTRM vendors have been expanding their reach outside of what has been widely accepted as core CTRM through acquisition of applications what would commonly viewed as tools for managing and optimizing supply chains.

CTRM Value Survey and Analysis

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The environment of physical energy and non-energy commodity trading and marketing has grown increasingly complex, marked by globalization bringing about rapid changes in supply and demand patterns, increased regulatory scrutiny and evolving trading and reporting rules, volatility along the entirety of the physical supply chain, and increasing uncertainty as to future price movements. In order to react to these changes quickly and appropriately, participants in these markets must increasingly rely on a sophisticated infrastructure of software and technologies to ensure a complete view of their trading positions and external market conditions that can quickly and severely impact their values. The core component of these now requisite trading and marketing technologies are energy and commodity trading and risk management (CTRM) systems. As market complexity has increased and multi-commodity trading has become more common, CTRM solutions have had to become more sophisticated and provide a greater depth of capability in order to capture and value the unique characteristics of the multitude of physical commodities being transacted along the physical supply chain, from source to market. Given the capabilities of these CTRM systems, they do represent a significant investment for any trading or marketing organization, generally trailing only the large scale ERP solutions, like SAP, in terms of costs to purchase and implement. Allegro Development, one of the world’s largest CTRM solutions providers, engaged Commodity Technology Advisory to conduct a survey of a number of their clients to determine their views as to the value of their investment and the operational and financial impacts of deploying Allegro’s CTRM solution. This report summarizes the results of that survey and discusses the key considerations for any company seeking to develop their own assessment of the value of their CTRM technology investment via a Return on Investment (ROI) calculation.

European Commodity Market Regulations

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23rd Apr 2014 - Version 3.1 - Increased regulation and oversight of European energy and commodity trading has commenced as various aspects of the EMIR (European Market Infrastructure Regulation), REMIT (Regulation on wholesale Energy Market Integrity and Transparency), and other regulations start to bite. These regulations are already having an impact on trading and risk management business practices and may have far reaching and as yet, even un-thought of consequences for the industry. Unfortunately, the authorities have yet to define some of the detail and clarity needed to be able to determine this.

Newsletters

Commodity Markets – A Headhunter’s View

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ComTechAdvisory: Given all of the turmoil in commodity markets this last year or so, how has the job market been impacted?

James Richmond: The markets have been slow in the past year in the prime locations (London and Geneva in particular). There has been a lot of divestment in the oil majors and energy utilities as well as in the more asset based areas of the multi-commodity traders. I have noticed a lot of growth in the outsourcing market. Whilst the UK and Switzerland has been quieter than usual, most firms tend to hire more globally dispersed teams, which comes with the added benefit of cost savings / staffing arbitrage. In the last 6 months, we have been involved in staffing projects into the Netherlands, Germany, Portugal, Estonia, Stamford, Singapore and the Czech Republic. Two years ago, it was mostly Switzerland and the UK.

Trends in Technology

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ComTechAdvisory: What is Contigo seeing in terms of uptake of the ETRM in cloud and what are the benefits of such an approach?

Adrian Bullock: We are seeing strong interest in implementing in the cloud from both small and bigger players. Over 80% of our contracts signed in the last 18 months are implemented in the cloud, we have also migrated a number of our deployed clients to the cloud in the last year.

ComTechAdvisory: What does Contigo see as the main pros and cons of a single tenanted versus multi tenanted approach for ETRM software?

Adrian Bullock: The flexibility we can offer our clients with a single tenanted model greatly outweighs the operational advantages of a multi tenanted architecture. Using a shared infrastructure with a high level of automation of releases and upgrades gives us many of the advantages of a multi tenanted architecture whilst still maintaining the ability to have a high level of customization for each of our clients and ensuring data segregation. We have never had an actual or potential client insist on a multi tenanted model.

Developments in CEE

Developments in CEE - An Interview with David Kučera

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An Interview with David Kučera, General Secretary of the Prague Energy Exchange („PXE“)

ComTechAdvisory: Tell us a little about PXE – its history and objectives

David Kučera: PXE was established as a daughter company of Prague Stock Exchange. The idea came from the largest power market participants who were looking for an independent and transparent venue that would show electricity market prices and that would enable to conclude transparent transactions on the anonymous basis.

As we were successful on our local market we wanted to take advantage of our know-how and expand our product offering to other countries. We focused on financially settled long term derivative products. Currently PXE offers derivatives on Czech, Slovak, Hungarian, Romanian and Polish electricity.

PXE originally used its own trading system as well as clearing but we gradually started a cooperation with EEX group and implemented ECC clearing and this month also T7 trading system.

Artificial Intelligence and Machine Learning

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An Interview with Cyrus Dadachanji, Partner, Energy Trading and Risk Management at Infosys Consulting

ComTechAdvisory: Please tell us a little about Infosys Consulting and the team that you are building?

Cyrus Dadachanji: Infosys Consulting’s Commodity Trading & Risk Management (CTRM) practice sits within a broader Commodity Consulting organization, and focuses on all activities in the commodity trading/risk and the logistics value chains. We cover the full range of physical and derivative commodities including the energy complex (oil, gas, power, emissions and LNG), metals (base and precious), and agricultural products, as well as FX and interest rates derivatives. Functionally our service offerings address topics aimed atidentification of value leakages, increasing revenue generation, reducing the cost per trade with a focus on margin uplift, and ensuring necessary governance and control across the commodity trading value chain. Our clients include oil companies, vertically integrated utilities and commodity traders, as well as financial institutions.

Our CTRM practice is a global practice, led from our London headquarters with activity in Europe, Middle East, AsiaPac, North America and Latin America.

We aim to bring advanced and cutting-edge technology concepts such as digitalization, machine learning, artificial intelligence and big data analytics to address tomorrow’s CTRM issues. Our professionals combine deep business, functional and technology expertise.

We deliver value to our clients through a global network of consulting, large programme delivery and development/testing professionals.

New Business Models and Consumer Focused Digital Transformations

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ComTech visits with Amir Soufizadeh, Head of Commodities & Utilities Practice at BJSS. Founded in 1993, BJSS operates across the UK and USA, providing consultancy and services for the delivery of enterprise-scale IT solutions. The company’s clients include some of the world’s largest organisations including investment and retail banks, government departments, retailers and commodity traders.

ComTechAdvisory: How is business for BJSS at the moment and what is driving it?

Amir Soufizadeh: (AS) Business is great! BJSS has grown organically since 1993 but last 12 months have been extremely busy, with rapid growth in each of our four industry verticals - Financial Services, Commodities & Utilities, Public Sector and Retail & Media. Digital transformation has been the key driver, led by Cloud, AI and machine learning initiatives.

Kynetix explains Distributed Ledger Technologies and its future

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ComTechAdvisory: What is Kynetix’ interest in Blockchain technologies?

Scott Riley: There are three primary drivers to Kynetix’s interest in DLT:

1. Our mission at Kynetix is to bring total trust to the commodity markets. Given the claims that DLTs are a 'trust machine' we thought we better explore the assertion. Having been at the forefront of technology in our field for over 20 years, technology is in our DNA. Blockchain or DLT technologies are currently attracting huge interest across financial and physical market players. Our experience has taught us that the best way to understand new technologies is to experiment with them and test their capabilities and functionalities; which is what we’ve been doing with our partners for the last 2 years.

2. Sentinel, our best of breed market infrastructure platform, sits between the physical economy and the financial markets. As such we need to ensure we can interface with any platform in the commodity transaction value chain. We believe DLT will revolutionise aspects of the commodities transaction value chain and therefore we need to continue leading initiatives on this topic.

3. Innovation is a constant in our industry. All our customers, including the likes of LME, ICE, SDiX all demand that we continue to offer them innovative solutions so that they can in turn offer their clients new, market leading services. We are proud of our legacy of collaboration with key clients and we always aim to deliver our clients the latest innovations to help unlock value in the physical markets for their customers.

An Interview with Michael Kirch CCO of Beacon

An Interview with Michael Kirch CCO of Beacon

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ComTechAdvisory: What is the Beacon platform and what was the impetus for developing it?

Dr. Michael Kirch: Mark Higgins and Kirat Singh founded Beacon in 2014 to create a modern collaborative technology environment in the world of institutional finance. Historically, financial institutions and vendors have built closed proprietary technology to solve specific business problems. At Goldman, JPM and BAML, Mark and Kirat were very successful in building cutting edge trading systems based upon open transparent platforms that can support a very wide range of tasks. Beacon enables the same level of innovation and business agility for our clients and makes it easy for software or data vendors to create and offer third party packages in the Beacon app store.

Carbon Trading: If at first you don’t succeed, try, try, try again

Carbon Trading: If at first you don’t succeed, try, try, try again

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It had been a rough day in the carbon markets for Arnulf Kohler.

But that was typical for Arnulf (known by Arn to his very few friends) who led an austere, lonely life, much like all the others in his profession. His job was filled with anxiety, he suffered from a lack sleep, and he was convinced his work environment was causing any number of other psychological disorders.

It didn’t help that most workers in Arn’s profession were routinely ostracized by society, and it was disheartening to him that many considered his trade dishonorable and frequently accused him of evil practices.

To top it all off, he’d fallen asleep again in his office, nearly burning down his place of work, and now the boss was coming by, most likely to give him the axe. This was most worrisome, as getting the axe from the local burgermeister mostly likely meant his head would literally roll.

Commodity Auctions and Exchanges

Commodity Auctions and Exchanges

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Interview with Phil Bird Perfect Channel

ComTechAdvisory: Can you tell us a little about Perfect Channel? How did it get started and what are its objectives?

Phil Bird: I suspect, like any venture, it’s more about following a trail of crumbs than a eureka moment. I looked at auctions and what they were used for, alongside what level of sophistication, both technical and theoretical, was being brought to bear. It’s an amazing mechanism for balancing supply and demand and has broad application, it just didn’t look like anyone was harnessing its power, so hence Perfect Channel.

Broadly our objectives are;

  1. Bringing efficiencies to complex B2B markets by creating the right situation (competitive tension) and the right segmentation (buyer, sell and inventory matching).
  2. Enabling price discovery and liquidity for infrequently traded assets.
  3. Expanding marketplaces from local to global.
  4. Creating information equality.

 

ComTechAdvisory: What is going on in the world of commodity exchanges and how can Perfect Channel address these trends?

Phil Bird: We see commodity exchanges moving quickly to take advantage of legislative changes that affect how the OTC markets operate in terms of both mandatory clearing and transparency. In so many segments of the commodity markets, OTC trades remain favourable for various reasons; there could be fewer transactions in a fragmented market or the product is generally quite bespoke to meet the needs of the end-user. We can all cite examples where an Exchange has launched a futures contract that fails to attract the liquidity to become viable. The degree of optionality by quality, seasonality or location makes it impossible to benchmark against a ‘common’ index. What Perfect Channel offers is an e-commerce platform that fills the (very large) hinterland between homogenized cash settled commodities instruments and the OTC physical market. Exchanges come to us when they require a system that can be tailored for the physical markets. We refer to this as a complementary model.

How will the CTRM vendor landscape evolve? CTRM Thought Leaders

How will the CTRM vendor landscape evolve? CTRM Thought Leaders Q&A

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This last quarter, we asked our Thought Leadership panel the following questions.

ComTech: “In our recently released 2016 CTRM Vendor Perceptions Report, when our respondents were asked to name vendors of CTRM products (and without prompting), the group cited more than 85 different vendors. Additionally, in our ongoing research, we have uncovered more than 98 different vendors that produce software products covering at least some portion of the CTRM value chain.

In each of the last couple of years, ComTech has observed less than 50 new top and mid-tier customers buying CTRM solutions, with another 50 or so existing top and mid-tier customers buying additional technology components. Given the number of active vendors and this level of market activity, how do you see this potential disconnect between that market activity and the number of technology providers evolving? Will we see a consolidation of vendors via acquisition? Will we see the smaller vendors simply exit the market over time as the large vendors get larger?

Will a significant number of the small vendors be able to capture market share from the larger vendors? Or, do you feel that the current levels of activity is enough to sustain the majority of the existing technology providers both now and in the future?”

ComTechAlert-Blurred lines – CM, ERP and CTRM.pdf

Blurred lines – CM, ERP and CTRM

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One of the key topics in the recently released CTRM for Ags & Softs study report was the definition of Commodity Management and Commodity Trading and Risk Management (CTRM). We concluded in the report that, “historically, Commodity Management (CM) emerged as a set of business processes related to the handling of commodities in the context of supplier-relationship management and procurement in entities that essentially utilized (consumed) raw materials for creation of intermediate or finished goods. To that end, it could naturally be seen as an extension of ERP, as it included managing supplier relationships, inventory, movements/supply chain, accounting, purchasing, processing and so on.

As commodity and raw material prices became more volatile and as more regulatory oversight was introduced into commodity markets, many manufacturers and commercial packaged goods companies slowly began to look into hedging strategies for price risk management. Such activities required functionality not usually included in an ERP solution, but were perceived to offer competitive and strategic advantages. CTRM software, however, did offer risk management and derivative trading functionality and began to be adopted as an add-on to the ERP solutions already in use. Meanwhile, banks, funds and merchant traders were increasingly trading ags, softs and related commodities in a more diverse portfolio of natural resources helping spur the growth in the market for ags & softs-focused CTRM solutions.”

Impacts of low commodity prices on CTRM software

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Commodity Technology Advisory
Question - We’re hearing that OPEX is under considerable pressure at a majority of energy and commodity trading shops, with some facing cuts as high as 30% versus 12 to 18 months ago. What advice would you give a CIO facing such cuts in their organizations?

Manav Garg, CEO & Founder, Eka Software Solutions
In today’s environment of low commodity prices, it is more critical than ever before to do more with less. Eliminating waste and trimming expenses wherever possible is necessary, and many companies have already taken steps along that path. Companies need to cut costs while still serving customers and successfully managing the business.

Operational efficiencies can be realized through the use of technology. Most companies have previously adopted some type of CTRM or ETRM software to manage commodities, but may also continue to rely on spreadsheets, at least partly. As E/CTRM has increased in functionality, companies will benefit from eliminating these in-between spreadsheets in favor of a fully integrated multi-commodity CTRM solution that supports all front, middle, and back office functions.