Gaspard Duguet: The role of technology in the transformation of the commodity business

“Trading in fuels, metals, livestock and agriculture is fundamentally important to human existence. These four commodities include all the raw materials we need to produce energy, building materials, textiles, and food. The entire economy depends on the supply and demand of these goods, and any disruption to their trade could have catastrophic consequences for billions of people.

However, although commodity market movements affect us all, trading is often under the control of a few large institutions that have access to the necessary and – even vital capital. more – quality information to help them make the right decisions. Until the very recent past, this intelligence was limited to industry insiders, who have built large networks of sources, each of whom can provide detailed information on the movements of different types of goods.

However, the process is fraught with risks. An individual source will only cover a small part of the picture, which means traders have to piece the puzzle together for themselves. Information often has questionable accuracy, as it is out of date by days or even weeks. Around the turn of the 21st century, however, things began to change. Advances in technology have increased the accuracy and immediacy of data, as well as increasing the number of reliable sources.

These advances have catalyzed the revolution in the trading of commodities. At the heart of it all are independent, trusted data companies that have transformed the intelligence-gathering process. Comprehensive, trusted data is now accessible to organizations of all sizes – not just large companies – leading to the democratization of entire industries.

Data Science is becoming more and more important for traders

Commodity prices change due to a number of different factors. To make optimal trading decisions, traders need to be aware of such things as commodity production, inventory, flow and consumption. But data about these processes comes in a variety of formats from hundreds of sources, such as news feeds, customs, port authorities, shipping authorities, and satellites.

Tracking all these sources and cross-checking the information is a complex task, and larger traders may have an entire department dedicated to doing this, employing teams of data scientists and analysts. market analysis. Now there’s also a place for independent data and analytics firms, delivering intelligence to traders of all sizes through technology-driven solutions. These solutions have been developed by data scientists together with market analysts with the needs of traders in mind, giving them access to up-to-date insights by aggregating millions of points data and using technologies such as Artificial Intelligence and Machine Learning. Traders can then use these insights to inform their trades, reveal new opportunities, analyze market trends and monitor their competitors. .

Technology not only simplifies the market analysis process for commodity traders by improving the reliability and quality of market information, but also increases the number of sources they can use. Satellite imagery is now used to track the movement and storage of commodities such as crude oil from space. Images can be scanned to determine the exact capacity usage of storage tanks, and an even newer technological innovation – drones – provides details that could even be useful for businessman. By attaching infrared cameras to these drones, it is possible to timely view the amount of crude oil in the tank at any given time.

Technology as a problem solver

Technological innovation also has an important role to play in solving problems affecting the smooth trade of goods around the world. For example, the closure of the Suez Canal in early 2021 could cause significant cargo shortages if it occurs in the 20th century. However, data-driven tracking technologies allow for Traders immediately react to the problem by rerouting the vessels. By being flexible with their strategy, provided with up-to-the-minute intelligence, stakeholders have minimized disruption to the supply chain and the end consumer is virtually unaffected. trouble.

However, the digitization of commodity transactions is not something that should be done haphazardly. Only when there is a compelling case for technology solutions should they be used – in most cases problems are best solved by taking a simple, agile approach . Trying to use the most advanced and expensive technologies to solve problems is not always appropriate.

The role of technology in the future of commodity trading

While technology has definitely changed the way commodity traders operate, its impact on the future of the industry will be the most significant. As the world aspires to achieve its ambitious ‘net zero’ targets by 2050, the commodities business will need to dramatically reduce its emissions and reduce its carbon footprint. This will have an impact on everyone along the value chain from producer to consumer, and data analytics will play a key role in helping stakeholders across every industry make informed decisions. greener.

The energy sector will be particularly affected, with an increasing reliance on alternative energy sources such as solar, wind and tidal power, as well as biofuels and hydrogen. All of these markets will need to be tracked precisely, as fossil fuel consumption decreases and biofuel and hydrogen use will increase. Tracking carbon emissions will be absolutely critical – currently heavily reliant on self-reporting and there are few agreed-upon standards across the industry.

The digitization of commodity trading will benefit all of us
By providing traders with more accurate and timely information, technology has had a positive impact on global trade and improved access to the commodities humanity needs to survive. everyone on the planet.

But in terms of the big picture, the digitization of commodity trading is just getting started. Transforming to achieve bogus goals will accelerate this process, meaning key players will get improved access to reliable data, helping them make better decisions. This can only benefit humanity, ensuring the global economy continues to function while providing us with the information we need to reduce our carbon footprint and mitigate the effects of climate change. Queen “. Gaspard Duguet: The role of technology in the transformation of the commodity business

Fry Electronics Team

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