The commodity trading industry has experienced an upward trend in the past five years, and McKinsey predicts excellent prospects for the future. The ongoing energy transition will bring about significant changes in commodity trading, including increased volatility, disrupted trade flows, redefined commodities, and altered commercial relationships. These developments present both opportunities and challenges for new and existing players in the industry.

To achieve success in the coming years, McKinsey posits five key factors to consider:

  1. Prioritize customer centricity: The energy transition is reshaping commodities, and customer needs and preferences will determine the development of new offerings. Traders with access to customer insights can create tailored high-quality products, giving them an advantage.
  2. Embrace the shift toward short-term markets: Producers and customers are increasingly turning to short-term markets due to flexibility, arbitrage opportunities, and lower hedging costs. Traders should adapt to this shift and take advantage of the opportunities it presents.
  3. Invest in decarbonization: Green products are in demand as customers seek to mitigate environmental impact. Traders who understand the “green premium” can leverage arbitrage opportunities through adjustments to blending, logistics, and cost optimization.
  4. Rapidly ramp up trading capabilities: As the value pools grow and barriers to entry decrease, existing players and new entrants need to scale up their trading capabilities to succeed in a competitive landscape with higher volatility and changing trade flows.
  5. Balance efficiency and agility in the trading platform and operating model: Talent shortages and evolving market dynamics require trading platforms to be efficient and agile, enabling growth and adaptation.

These success factors raise strategic questions for different sectors within commodity trading:

  • Oil and gas: Consider the role of mergers and acquisitions in achieving portfolio scale and trading capabilities. Assess the need to expand into new commodities like green ammonia and hydrogen and decide whether to integrate them with existing operations or keep them separate.
  • Utilities and renewable-asset players: Decide whether to embrace short-term markets in renewables or focus on de-risking assets through a customer-centric approach. Determine the required scale, diversification, and market insights for a successful strategy.
  • Mining and metals: Evaluate the importance of customer centricity in a future where green products are in demand. Assess the global vs. regional market outlook and its implications for portfolios and trading capabilities.
  • Agriculture: Anticipate the convergence of food and energy, such as biofuels, and develop the necessary portfolio and trading capabilities. Consider scaling up assets and positions strategically to capture above-average returns.
  • Large industrial consumers: Determine the optimal balance between long-term contracts to secure green supply and short-term approaches to avoid high prices during market downturns. Incorporate low-carbon products and brands into the portfolio to capture the green premium.

There are three potential models that traders may gravitate towards:

  • The global smart-scale trader: Focus on digital enablement, automation, and global market access to pursue thinner margins. Seek organic and inorganic growth, attract flows from smaller players, and consider acquiring smaller trading units to build trading capabilities.
  • The niche trader mastering ‘complexity’: Target regional or commodity-specific relationships and develop a competitive edge based on customer centricity or specialized technology and analytics.
  • The tactical trader-investor: Take positions to solve supply and demand imbalances in cyclical markets. Use a trading mindset, take equity in illiquid physical positions, and leverage flexibility and optionality.

In the coming years, these developments and trends will likely attract new players and increase the value at stake. It’s crucial for industry winners to invest in the five success factors and be prepared to adapt quickly to seize opportunities.

To recruit and hire the kind of traders who outperform in this new environment, firms must shift quickly from old ways of thinking to an approach that is more in tune with the five success factors. Given the complexity of this change, firms will need to recruit, interview, and screen financial executives in a whole new way. A relationship with a recruiting firm that understands f this new world is likely to produce the best results. An effective recruiting partner will align with the company to identify the right combination of skill and experience to find the top candidates and to convey to them the culture and values of the company.


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