Secondary, or Scrap Trading could be a requirement for your PnL in the years to come

Secondary, or Scrap Trading could be a requirement for your PnL in the years to come

The connotations around ‘Scrap Trading’ has never been that attractive to the market in the past, so it is unsurprising we are now hearing the term ‘Secondary Trading’ growing within the many markets, but particularly Metals.

Whilst scrap trading isn’t new in any of the commodity markets, your average consumer and certainly your company CEO is well aware of the rising, in many cases in more ways than one, value of using ‘recycled’ materials and components.

In the last 6 months Proco Commodities has been partnering with traditional players in the market to explore how a diversified PnL, incorporating Secondary Trading can increase revenues and market share.

But it goes beyond just a drive to increase revenue alone, typically Commodities and Natural Resource Trading Firms have been criticised for side-stepping their environmental responsibilities, and in some cases contributing directly to a negative environmental impact.

To hedge these acquired perceptions of their operations, Trading Companies are now acknowledging these external pressures, and responding. Firms are increasingly looking to a more Corporate Socially Responsible way to grow their business, and Secondary Trading is a workable way to do that.

However it is not just external perceptions and pressures that are driving Secondary Trading, natural resources are a finite resource and by incorporating ‘recycled’ or ‘scrap’ metals into ones trading strategy reduces the reliance on Primary Trading and increases the ability to satisfy demand by having a diversified source of product.

These products, whether they be metals, plastics or glass which can be acquired, and in many cases very easily through secondary trading, are indispensable in today’s industries. They can be found in semiconductors, OLEDS, magnetic data storage and automobiles to name but a few. Of which, the manufacturers of these components are also subject the stringent scrutiny to operate ‘ethically’ and with best interest of the environment by many.

Arguably in some cases, your large Car Manufacturer or Coffee Chain will suffer far more scrutiny than your Trading Companies, as their product end users are the consumer. The very same consumer who has succumbed to the education or pressure to use their re-usable coffee cup every morning. These buyers do as we have seen, they make educated choices on their suppliers, and where they can are likely to choose the ‘ethical supplier’.

In 2018, Supply Chain demand for various metals has increased, in some cases Primary Trading alone can’t satisfy – because satisfying demand, isn’t simply just supplying the product.

Whilst some will argue it is early days for Secondary Trading within Metals to become a significant PnL contributor, and whilst they may be right, they can’t ignore that Firms in the supply chain are waking up to their Buyers demands and expectations.

It comes as no surprise we are now seeing headline commitment from some of the biggest brands committed to implementing quotas and guidelines to the types of materials Firms use and how they source raw materials, for example Volvo setting a 25% recycled Plastic goal for 2025.

Trading Firms with an interest in Metals of all types would be wise to consider when Secondary Trading could and should be a legitimate consideration when scrutinising their revenue streams. Because commitment to minimising Organisations global environmental footprint is high on the agenda on many organisational objectives and Commodities should be no exception.

by Stuart MacSweenview my profile

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