Risk Monitoring & Management Trends in Commodities
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.