The Commodities Revolution: Getting ahead of the curve

Huge margins in the commodities trading market are being challenged today like never before. With the pace of innovation at its highest we are seeing technology and supply chain solutions changing the landscape for how we interact with commodities. Technology plays a vital role in ensuring companies remain competitive and ultimately boosting profitability. The early adopters will benefit the most leaving behind some of their competitors.

Startups entering this field are shaking up the status quo – meaning that established, traditional players are now needing to make moves to protect their profits. Purpose-built tech startups like VAKT, OilX, Signal and Kpler taking increasing market share. From initiatives such as automation, digitalisation to data analytics, businesses are now investing in innovative solutions at an unprecedented rate. The adoption of technology is enabling businesses to diversify their revenue streams whilst also enhancing their overall capabilities.

Enterprises are increasingly looking at ways of streamlining businesses and protecting the balance sheet. There is a single theme running through all of the conversations I have had with technology leaders of Commodities / Energy businesses, which is “How do I keep my organisation ahead of the curve and in front of my competitors?” Some could argue now is a great time to be a CTO / IT Leader however with such a plethora of solutions hitting the market across ETRM, data analytics, IoT, and Blockchain to name a few where does one start? Most traders like optionality and those that are prepared to invest in enterprise-wide technology initiatives will be on the front foot.

What is driving this change?

A number of factors are contributing to this shift.

1. The energy transition is a fundamental factor; the roadmap for cutting carbon emissions and reaching net-zero carbon by 2030 is a major reason for companies adapting their business practices through adopting more sustainable technologies. With COP26 just having taken place there is an increased sense of accountability from businesses to adhere to net-zero carbon initiatives.
2. Market volatility is providing opportunities for many savvy enough to react and diversify their business. Energy and commodities companies, including utilities, industrial firms, and trading houses, are now dealing with higher frequency of extreme events than ever before.
3. Competition is fierce. Tech startups that are purpose-built and ‘future-proofed’, are taking market share, emphasising the need to evolve at pace.

Trends

According to Energy Risk’s 2021 Software Survey, 70% of respondents said the biggest technology challenge for energy risk managers and traders was “understanding what new technologies are available and applicable.” Data science practices in general are being reshaped as the relationships between front offices and technology desks are redefined.  Traders’ thirst for real time analytics has never been higher and so the demand for a ‘quantamental’ approach is well received.

So what specific trends are we seeing as a result of all this affecting established commodity firms?

1. Real-time analytics
   1. Traders’ thirst for real-time analytics has finally become a reality due to accessibility to multiple data sources.
   2. Hires for Data Scientist’s, Data Engineer’s and Quants have seen notable increases in demand across all regions to help make the data useful and useable.

2. Cloud-based migrations
   1. The significant benefits of Cloud adoption relating to deployment, scalability, performance, security, and cost have been too tempting to ignore.
   2. With more and more firms adopting Cloud technologies we have seen a significant increase in the demand for Software Engineers with AWS, Azure and GCP projects experience.

3. ETRM
   1. ETRM requirements have increased notably to help organisations tackle multiple needs such as regulatory compliance, reduce risk coverage and to speed up trading activities.
   2. Hires for ETRM Developer’s, Business Analyst’s and Project Manager’s have increased dramatically within Europe especially, spurred on by recent market volatility.

Why should you care?

The impact that technology is having upon and influencing commodity trading is very apparent and the rate of digitalisation will only accelerate. To compete you need the best talent.

Having trouble determining the best framework to implement your vision of the future? Feel free to get in touch me on tom.mee@prococommodities.com. We make it our mission to find the best people, for your people. Be sure to follow us on LinkedIn to stay up to date with all the latest trends and developments taking place across the supply chain.