ENE430 Commodity Trading and Transport
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
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 emphasis is 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. Completing the course should produce the following learning outcomes for the candidate:
Knowledge - the candidate
- Can analyze the key drivers of supply and demand for the major commodity groups.
- Has thorough knowledge of the financial markets for commodities, including price indices, exchanges and instruments.
- Has thorough knowledge of why prices for certain commodities share particular patterns (mean reversion, seasonality, shape of the forward curve).
- Has thorough knowledge of the physical trading of commodities such as shipping terms, ship types, port issues and the transfer of physical risk and property.
- Can 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/competencies - the candidate
- Can analyze and deal critically with the strategic and operational choices faced by companies operating within the commodity space.
- Can 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
- Can communicate with industry people about key issues in the trade and transportation of commodities by mastering the language and terminology of the business
Each lecture will start with a real-life question from the topic to be covered in class and each such short case will be discussed in plenum towards the end of the lecture. Guests from the industry will also lecture on selected topics.
Basic knowledge in finance (discounting, net present value, options), microeconomics (supply functions, demand, elasticity) and statistics (probability distributions, expectation, standard deviation, variance, and regressions).
Requirements for course approval
Each group must give a lecture to the rest of the class based on the main content of their term paper for course approval. Not all members of the group need to present but all most be present to answer questions from the audience.
Attendance at guest lectures and term paper presentations is mandatory unless otherwise agreed beforehand.
There is a single grade for the course given on the basis of a group term paper (maximum 4 students).
The exam can only be answered in English.
A - F
PC: Word, PowerPoint, Excel.
Selected academic articles and bookchapters to be announced. All lecture notes and case study notes form part of the curriculum
Spring. Not offered Spring 2019
Professor Roar Ådland, Department of Business and Management Science