Euromoney Audit Training

Course overview

The commodity markets present unique challenges such as non-homogeneity of product, physical versus paper product, delivery location and liquidity issues. The sector enjoyed an unprecedented bull prior to the global financial crisis.
 
The dramatic price movements in recent years underscore why commodities can no longer be ignored. Understand the structural re-adjustments taking place and be best positioned to profit from changes in commodity trading behaviour.
 
This course seeks to clarify the primary influences on the major commodity sectors and equip participants with tools to assess the risk inherent in commodity related strategies. Also, it covers important topics in the commodity sector, from hedging techniques and investment strategies, through to loan structuring.

Summary of course content

• Understand the nature of commodity markets
• Get to grips with the inner workings of the main commodity sectors and clarify the relevant primary influences
• Develop an awareness of the benchmark commodity futures markets and apply common OTC structures
• Identify the impact of commodity specific risks and devise strategies to mitigate them
• Incorporate price risk management alongside physical procurement
• Understand the products underpinning commodity investment vehicles
• Select commodity products which best match investment criteria in the prevailing market conditions
• Establish appropriate financing structures
• Tackle day-to-day market reality

Methodology

A practical, pragmatic approach is adopted throughout. Lecture sessions are reinforced with discussion sessions and workshops. The course features hands-on case studies exploring the unique characteristics of the markets and offering real-life solutions to real-life scenarios.

Who should attend this training course?

• Heads of Sales and Trading
• Investment Bankers
• Relationship Managers
• Audit, Legal and Credit Teams
• Fund Managers
• Head of Investment
• Finance Directors and Treasurers
• Procurement Managers

Supporting publications

   

DAY ONE

Introduction to commodities

• Definition and classifications
• Principal price drivers
• Commodity cycles
• Spot and forward prices
• Contango, backwardation and convenience yield

The interaction between physical and paper markets

• Market inter-relationships
• Physical and paper contracts
• Delivery and storage
• Managing physical risk with paper
• Consignments
• Real options

Workshop: Participants implement a price risk management strategy in tandem with a physical procurement programme

OTC and futures markets

• Product depth and liquidity
• Futures contracts
• The main commodity exchanges
• Size of futures markets
• Physical and cash settled futures
• Size of OTC markets
• Common OTC products
  – Forwards, swaps, spreads, options and swaptions
• Centrally cleared OTCs

Workshop: Participants devise commodity trading strategies and manage a portfolio in response to market movements

All that glistens

• Good delivery
• Allocated and unallocated metal
• Metal fixings, lease rates and GOFO
• Metal forward prices
• Precious metals futures
• Industry bodies
• The unique nature of gold
  – Central banks, producers and investors
• Silver and PGM market drivers

DAY TWO

Understanding base metals

• Base metals cycles
• The London Metal Exchange (LME) and the physical market
• LME brands
• Warrants and seller’s option
• Warehousing and stocks
• Trading on the LME
• LME contract dates
• Price benchmarks
• Other base metal exchanges
• The products and their price drivers

Workshop: Participants compare London and Shanghai copper prices

Introduction to energy

• Classifications of crude oil
• Global crude benchmarks
• Crude price differentials
  – Focus on Brent vs. WTI
• Distillates
  – Gasoline, kerosene, diesel, gasoil, fuel oil and bunkers
• Trading oil and distillate products
• Physical assessments
• Principal energy futures
• Exchange for physical
• Cracks and diffs
• Energy price factors
  – Geopolitics, OPEC, stocks

Workshop: Participants consider the pricing differentials between high and low sulphur fuel oils in Singapore and Europe

Completing the energy spectrum

• Natural gas
  – Gas markets
  – Oil indexation
  – LNG and shale gas
• Coal
  – Coal classifications
  – Financial markets for coal
  – Principal indices
• Electricity
  – Load
  – Marginal fuel
  – Spark and dark spreads

Saving the world

• Carbon trading
• Kyoto and beyond
• Carbon credits
• Clean development mechanism
• Joint implementation
• Emission trading systems
  

DAY THREE

Down on the farm

• Farming basics
• Market size
• Price dynamics
• Grains
  – Agflation and biofuels
  – Corn, wheat and the soy complex
  – Seasonality and forward prices
• Softs
  – Sugar, cocoa, coffee and cocoa

Focus session: Crude palm oil market

Freight is great

• Wet and dry freight
• Vessels and shipping routes
• The Baltic Exchange
• Worldscale and TCE
• Freight futures and FFAs

Principles of commodity price risk management

• Price risk challenges
• Product choice
• Protection and commitments
• Natural hedges
• Underpinning business strategy
• Accounting implications
• Structuring and execution

Workshop: Participants analyse base metals contracts to identify price risks and cash flow implicationsManaging commodity price risk

Managing commodity price risk

• Market conventions and common practice
• Lease rates and borrowing costs
• Forwards, loans and prepays
• Lease rate swaps
• Floating forwards
• Carry market
• Fixed for floating swaps
• Using cracks and diffs
• Options and swaptions
• Swing

Workshop: Participants examine an energy consumer’s hedging strategy

DAY FOUR

Taking a discretionary exposure

• Why invest in commodities?
• Commodity investment vehicles
• Market impact
• Commodity indices
  – Traditional indices
  – Enhanced indices
  – Rollover risk
• Exchange traded products
  – ETCs, ETFs, ETNs
  – Product mechanics
  – Physically backed products
• Commodity linked notes

Workshop: Participants determine the optimal issuance environment for a commodity linked note

Assessing commodity risk

• Market risks
• Assessing basis risk
• Rollover risks
• Model risk
• Stress testing
• Operational issues
• Physical considerations

Financing the commodity sector

• Extraction
  – Early stage funding
  – Project and corporate debt
• Export and trade finance
• Where should the financier sit?
• Commodity route to market
• Legal structuring
• Return alternatives

Workshop: Participants represent a lending syndicate and a commodity producer and negotiate a mutually acceptable loan and hedge facility

Operational considerations

• Life cycle of a commodity trades
• Documentation
• Margining and collateral
• Cash and physical settlements
• Secured settlement
• Pre-deliveries and rollovers
• Location swaps
• Marking to market

Concluding summary and questions

• Emma Jenkins

  Emma Jenkins has many years’ line experience covering commodity markets, derivative pricing and structuring, and loan origination.
  
  After graduating from Trinity College, Dublin, in 1992 with a BSc Hons in Mathematics, Emma joined Goldman Sachs on their graduate program. In 1994, Emma moved to Westpac Banking Corporation and was responsible for the design and implementation of derivative pricing models for the interest rate and FX trading desks. In 1997, Emma moved to Credit Suisse to join the commodity team. She was responsible for marketing complex hedge structures in precious metals and associated financings. In 2002, Emma joined Macquarie Bank as a specialist commodity director, where she provided a complete banking service to clients in the base and precious metals, and oil and gas sectors.

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

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9-12 Oct 2012 (Singapore, Singapore)

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Options Trading Workshop

2-6 Jul 2012 (Hong Kong, Hong Kong)

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Equity Derivatives and Structured Products

7-9 Nov 2012 (Hong Kong, Hong Kong)

A three-day expert training course provides delegates with an in-depth understanding of equity derivative products and their applications in trading, hedging and portfolio management.

Derivatives Workshop

25-29 Jun 2012 (Singapore, Singapore)
10-14 Dec 2012 (Hong Kong, Hong Kong)

'Derivatives Workshop' is designed to provide delegates with a thorough understanding of the derivatives market place for both OTC and exchange-traded instruments, in particular how derivatives are used on a day-to-day basis to manage both exposures and to provide customer based solutions.

Interest Rate Derivatives and Currency Swaps

10-13 Sep 2012 (Hong Kong, Hong Kong)

A comprehensive guide to the latest practical and theoretical developments in the structuring, pricing and hedging of OTC derivatives

Options Trading: Module 1 'Options'

2-4 Jul 2012 (Hong Kong, Hong Kong)

This Module addresses vanilla options, and through a combination of classroom-based teaching combined with computer-based simulations and exercises, offers a thorough and practical understanding of option pricing and risks, and how options can be used in directional and nondirectional strategies, together with their dynamic hedging implications.

Options Trading Module 2: 'Exotic Options'

5-6 Jul 2012 (Hong Kong, Hong Kong)

This Module looks at exotic options and will provide a similar perspective on their pricing and risk characteristics, in order to understand the motivations and rationale for their usage in a variety of different hedging and trading applications.