The commodity markets present unique challenges such as nonhomogeneity 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.
This intensive course covers important topics in the commodity sector, from hedging techniques and investment strategies, through to loan structuring.
The course will enable you to:
- 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.
Course methodology:
A practical, pragmatic approach is adopted throughout. Lecture sessions are reinforced with discussion sessions. The course features hands-on case studies exploring the unique characteristics of the markets and offering real-life solutions to real-life scenarios.
Learning level:
A basic knowledge of capital markets, financial mathematics
and derivatives is assumed.
Who should attend:
- Heads of Sales and Trading
- Heads of Investment
- Investment Bankers
- Relationship Managers
- Auditors
- Lenders
- Credit Officers
- Fund Managers
- Corporate CEOs and CFOs
- Finance Directors and Treasurers
- Procurement Managers
- Risk Managers
Day 1
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 program.
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 .
Day 2
Understanding Base Metals
- Base metals cycles.
- The London Metal Exchange 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 & 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.
- Supply chain.
Day 3
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.
Case study: Identifying hedgeable commodity price risks in an agri- business.
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.
- Using forward curves to underpin business strategy.
- Accounting implications.
- Structuring & execution.
Workshop: Participants analyse base metals contracts to identify price risks and cash flow implications.
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.
Day 4
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 & corporate debt.
- Export & 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
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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.
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This course has now expired please email us to find out when the course will next be running.