spRING 2011 GlobAl MARKETs INTERNATIoNAl - Willis

marIne
CoMModity tRadiNg
Perhaps more than usual in an average year, we have seen a number
of factors, including good old fashioned harvesting results, combining
to create a volatile market place. This contradicts the underlying
fundamentals of speculative interest, seasonal impact, environmental
upheaval and political motivation.
As a result of the global economic downturn, we saw the prices for many
commodities fall dramatically. The relatively modest exposure in Asia
has certainly been a factor for the revival for certain commodities.
Even with China trying to avert an overheated economy, its impact
on the world’s raw material’s markets remain undeniably strong.
Climate continues to have a far-reaching impact, causing sudden price
hikes and unforeseeable volatility as the recent Russian wheat export
bans and the impact on cotton prices following the flood in Pakistan
amply demonstrate.
Aside from the niche companies, many smaller-sized firms have ceased
trading during the financial crisis. This has left the larger trading
companies to buy up competitors, and diversify into the ownership of
fixed assets such as refineries and mines. This provides them with a
consistent supply of product without having to trade through the usual
markets. The banks have an increasing influence, many of whom are
now entering the commodity fields by providing cash for goods using the
monetisation model.
Companies seeking to gain the competitive edge are looking to more
sophisticated financing options. Further interest is from hedge funds
seeking to move away from higher risk financial instruments to
counteract the impact of reduced margins.
In insurance terms, we have seen a shift away from temporary FPSO
storages towards more regular trading volumes. In spite of the relatively
depressed price levels compared to the peaks registered in 2008, this
class of insurance still attracts insurers’ attention: high insured limits
are maintained but the perceived good loss experience in this class has
resulted in a highly competitive market for this commodity.
38 | Willis | Mining Market Review 2011
" ComPanIes
seekIng to gaIn
tHe ComPetItIVe
edge are
lookIng to more
soPHIstICated
fInanCIng
oPtIons"
Metals (haRd CoMModities)
The economic recovery has resulted in
an overall increase in demand for metals,
particularly from China. This has meant an
inevitable increase in prices, especially for
non-ferrous London Metal Exchange (LME)
traded metals.
The emphasis for insurance remains on the high
limits and capacity required for storage and
the risk of misappropriation. However, there is
a strong market for these products and, in the
absence of any major losses, rates are likely to
remain low.
With the world slowly moving out of recession,
the insurance markets continue to view
commodities as an attractive opportunity.