Commodities trading is entering a new era thanks to increased data, and the rapid pace at which data can be processed. A report from Refinitiv and the Boston Consulting Group asks: What are the implications of this digital transformation in commodities and energy as it becomes more transparent and automated?
- The commodities trading world is rapidly evolving. Companies need to keep pace with the latest changes by employing digital tools and analytics platforms to smooth the digital transformation in commodities and energy.
- The Digitization of Commodities, a report authored by Refinitiv and the Boston Consulting Group, outlines the consequences of this digital transformation in commodities and energy, and how companies can grasp the opportunities it presents.
- By partnering with Refinitiv, commodities traders will be able to chart a course towards digitization that suits them, combining all the data and information they require into a single holistic solution.
The digital transformation in commodities and energy trading has been made possible by the increase in information available to trading firms and the speed at which they are able to process this data by employing digital tools and analytics platforms. All of this has enabled commodities trading firms to enter a new market era.
While trading firms are aware of this transformation, some are struggling to develop a clear vision of what it takes to remain competitive.
The question is: Where should they invest to achieve bottom-line results? The answer is not the same for everyone.
In a new report, The Digitization of Commodities, co-authored with the Boston Consulting Group, we outlined the main implications of this trend towards the digitization of commodities. More specifically, we explored how traders and analysts can harness these market changes and embrace the opportunities they present.
Data and commodities trading
The democratization of information, and the simultaneous exponential growth of data, is eroding the old information edge and introducing a new level of transparency.
Data has always been a source of power. In fact, the competitive advantage in commodity trading used to be determined by whoever had the best information and control of critical assets.
However, new technologies mean that information is more transparent and automated, enabling traders to make decisions in seconds. To predict commodities prices faster and more accurately, firms will have to consider the influence of artificial intelligence, blockchain, data management adeptness, and the demand for new skills.
Success will now result from a process of continuous anticipation.
To effectively respond to the disruption in commodities trading, instead of investing in isolated and disjointed projects and tools, companies need to develop an entirely new operational model. This model needs to put the right processes in place to continually respond to the market at speed.
For some companies, this means passing through the four stages of digitization identified by the Boston Consulting Group:
- Invest in electronic platforms and straight-through processing to cut direct costs.
- Use automation based on parametric algorithms to optimize processes and market entry.
- Leverage data-driven assistance to support decision-making and execution.
- Achieve full automation of the value chain.
It is important to understand the difference between a technology upgrade and a true digital transformation.
The only way to stay relevant in this new landscape is to be purposeful in your transformation — think digitalization, not digital.
That means not falling into the trap of chasing the latest buzzword, but rather trying to find a match, or a compromise, between your specific business needs and the available technologies that can solve those needs, that have successfully moved from concept stage to reality, that can scale fast, and that are within budget.
The digitization journey will rarely be a straight line. Firms will have to face the endogenous and exogenous factors that will inevitably arise. As opposed to a series of adaptions, success will come from a constant process of anticipation.
However, this process needs intelligence and insight that trading firms can trust, as well as the digital capabilities to quickly manage and interpret information.
The good news is that commodity firms do not need to develop the applications and infrastructure in-house. By partnering with Refinitiv, they can gain access to all the data sources they need and commingle it with proprietary information in a single holistic solution.
Charting the right course for your digital journey is crucial. Once you understand the changes, you can respond with speed and market insight, gaining the competitive edge required to thrive in a digitized world.
For a more in-depth examination of the trend towards the digitization of commodities and how you can gain a competitive edge, explore our report: