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 such as those for 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.

  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

  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/competences - 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

• Teaching

  Lectures, presentations by industry experts, case studies, group work, student presentations.

  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 lecture on selected topics. Live lectures at NHH will not be recorded, but international speakers may give digital guest lectures. Some pre-recorded guest lectures may also replace physical lectures.

• 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

  One mandatory assignment - a group-based presentation on an assigned topic - must be submitted on time and be of satisfactory quality in order to fulfill compulsory activities (work requirements). The presentation will be evaluated based on the correct use of terminology and the quality of the content, the standard of the oral presentation to the class, and the ability to answer questions. The assignment can only be answered in English.

  Attendance at guest lectures and student presentations is mandatory. It is also expected that students are present in the other lectures and participate actively in discussions, particularly of case studies.

• Assessment

  The grade for the course is given on the basis of a group-based term paper (2 - 3 weeks duration, submitted before Easter break, maximum 4 students in each group).

  The term paper can only be written in English.

• Grading Scale

  A - F

• Computer tools

  PC: Word, PowerPoint, Excel.

• Literature

  Selected academic articles and book chapters available on Canvas/Leganto. All lecture notes and case study notes also form part of the curriculum.