ENE430 Commodity Trading and Transport

• Topics

  The objective of the course is to give students in-depth knowledge about the global trade of commodities, both physical and financial, with a focus on the operational real-life business decisions that affect the profitability and risk exposure of traders, consumers, suppliers, and shippers of commodities. The course is practically oriented and focuses on understanding key business terms, instruments, risks, and markets used in commodity trading. The lectures may include examples from a broad range of commodity markets, both agricultural (soybeans and grains),steel, iron ore, coal, gas, crude oil, and freight. The emphasisis on how to manage uncertain market conditions and make a calculated choice between different options relating to the sourcing, delivery and transportation of commodities. A central theme is also the interdependence between the various commodity markets and the ocean transportation market, in particular, how freight management affects the profitability and competitiveness of companies.

  The following topics will be addressed:

  - The geography of global commodity trade: Areas of production and consumption, the reasons for changing trading patterns and volumes, an overview of the different types of commodities and the players involved.

  - The principles of trading: Fixed and floating prices regimes, terms of sale, quality differences, the impact of storage, the role of exchanges and clearing houses

  - The physical shipment of commodities: ship technology and shipping terms, functioning of the freight markets, freight contracts and voyage calculations, port issues

  - Risk management: What are the risks? Hedging instruments and insurance, mismatch between physical and financial positions, the risk management process

• Learning outcome

  Upon course completion, the candidate can:

  Knowledge

  • Analyze the key drivers of supply and demand for the major commodity groups.
  • Explain the financial markets for commodities, including price indices, exchanges and instruments.
  • Explain why prices for certain commodities share particular patterns (mean reversion, seasonality, shape of the forward curve).
  • Understand the physical trading of commodities such as shipping terms, ship types, port issues and the transfer of physical risk and property.
  • Analyze the risks of commodity trading (both price risk and physical risks) and how some risks can be managed, but also appreciate why hedging instruments can be imperfect or ineffective given the complexities of these markets.

  Skills

  • Analyze and deal critically with the strategic and operational choices faced by companies operating within the commodity space.
  • Use relevant methods for finding data on the commodities markets and use the sources of information to structure scholarly arguments in practical decision making related to the transport and trade of commodities

  General competence

  • Communicate with industry people about key issues in the trade and transportation of commodities by mastering the language and terminology of the business

• Teaching

  The course is divided into weekly modules, each devoted to the main topics or commodity markets covered in the course (e.g., coal, iron ore, crude oil, freight, etc.). Some of these weekly sessions will be conducted in person on campus, while others will be online (live streaming). The online lectures may be recorded and made available on Canvas afterwards.

  The first two weeks (Weeks 3 and 4) consist of four in-person sessions each week, focusing on the first five topics of the course. The subsequent weeks, from Week 4 to Week 10, will feature a mix of live-streamed online lectures and 'expert talks' from industry professionals. These talks will be based on the various topics covered in the course and may be conducted either in person or via online sessions.

• Recommended prerequisites

  Basic knowledge in finance (discounting, net present value, options), microeconomics (supply functions, demand, elasticity) and statistics (probability distributions, expectation, standard deviation, variance, and regressions).

• Required prerequisites

  Basic knowledge in finance (discounting, net present value, options), microeconomics (supply functions, demand, elasticity) and statistics (probability distributions, expectation, standard deviation, variance, and regressions).

• Credit reduction due to overlap

  None.

• Compulsory Activity

  Course approval is based on a group-based 15-minute presentation on the topic "Our top trading idea" to be presented to the class. Each group should have a maximum 4 students. Not all members of the group need to present, but all must be present to answer questions from the audience.

  Topics are approved on a first-come basis. The presentation slides must be submitted on Canvas by the end of the day on March 11th. Dates for student presentations are March 18 and March 19.

• Assessment

  The grade for the course is given on the basis of a group-based term paper (maximum 4 students). The text for the term paper question will be made available for the students in March.

  The term paper can only be answered in English.

• Grading Scale

  A - F

• Computer tools

  PC: Word, PowerPoint, Excel.

• Literature

  All are available under Leganto on the course Canvas page:

  1. Adland, R., Cariou, P., & Wolff, F. C. (2016). The influence of charterers and owners on bulk shipping freight rates. Transportation Research Part E: Logistics and Transportation Review, 86, 69-82.
  2. Alizadeh, A., & Nomikos, N. (2009). Shipping derivatives and risk management. Springer, Chapter 6:
  3. Bridge, G. and Bradshaw, M. (2017) Making a Global Gas Market: Territoriality and Production Networks in Liquefied Natural Gas, Economic Geography, 93:3,215-240, DOI: 10.1080/00130095.2017.1283212
  4. He, G. and Morse, R. (2014). China’s Coal Import Behavior and Its Impacts to Global Energy Market. Globalization, Development and Security in Asia, 3, 69-85.
  5. Hull, J. (2022) Options, Futures, and Other Derivatives, 11 edition, Chapter 5
  6. Hull, J. (2022) Options, Futures, and Other Derivatives, 11 edition, Chapter 22
  7. Pirrong, C. (2014). The economics of commodity trading firms. Singapore: Trafigura.
  8. Regli, F. and Adland, R. (2019). Crude oil contango arbitrage and the floating storage decision. Transportation Research Part E: Logistics and Transportation Review, 122, 100- 118.
  9. Stopford, M. (2009), Supply, Demand and Freight Rates, in Maritime Economics 3 rd edition, chapter 4
  10. Stopford, M. (2009), The transport of bulk cargoes, in Maritime Economics 3 rd edition, chapter 11
  11. Tutorship (2012), Introduction to shipping, ICS: London
  12. Tutorship (2012), Ship operations and Management, ICS: London
  13. Wårell, L. (2014). The effect of a change in pricing regime on iron ore prices. Resources Policy, 41, 16-22.