Tuesday, March 26, 2019

"Big data key for commodity traders’ future"

The FT's energy and commodities editors team up with a look at what's what with a focus on a major shift in the relative value of raw data—it's been, ahem, 'commoditized'—and  the extraction of actionable information from said data.
No more sending Fat Marvin to Ghana to check on the Black Pod disease situation among the cocoa trees.
From the Financial Times, March 24:
The world’s biggest commodity traders need to invest heavily in big data and technology if they are to arrest the relentless erosion of profit margins and recapture their information edge over rivals. Oliver Wyman, one of the few consultancies to track the performance of the largely private industry, forecast in a report that profit margins could fall by another 15 per cent to less than $30bn by 2025, continuing a trend that has already weighed on traders such as Trafigura and Vitol.

Gross trading margins — the amount made on trades before deducting costs such as tax, salaries and bonuses — have already dropped by 20 per cent to $35bn since their recent peak in 2015 amid fierce competition and more widely available access to market intelligence. Roland Rechtsteiner, a partner at Oliver Wyman and co-author of the report, said that after growing trading volumes aggressively between 2014 and 2017 to offset margin erosion, the industry now needed to prioritise boosting its analytical capabilities.

“The industry is maturing after a period of rapid growth, but it is also facing big changes ahead,” said Mr Rechtsteiner. “All commodity trading firms will have to review their business models.” Oliver Wyman, which is advised by Trafigura co-founder Graham Sharp, said the trading houses needed to invest in sophisticated analytical systems and hire data scientists to allow them to draw valuable insights from the reams of data generated by their global network of ports, warehouses and storage terminals. That will require companies to revamp their operating models and experiment with large-scale pilot programmes to discover new trading strategies. “Historically commodity trading was all about market intelligence but over the past decade data has been socialised. It’s omnipresent and available for everyone,” said Mr Rechtsteiner....MUCH MORE