Commodities Markets, Derivatives & Finance

Course Background The commodity markets present unique challenges such as non-homogeneity of product, physical versus paper product, delivery location and liquidity issues. The sector enjoyed an unprecedented bull run at the beginning of the century, and suffered a sharp pull-back as a consequence of the global financial crisis. Understand the structural readjustments taking place and be best positioned to profit from changes in commodity trading behaviour. This course seeks to clarify the primary influences on the major commodity sectors and equip participants with tools to assess the risk inherent in commodity related strategies. This intensive course covers important topics in the commodity sector, from hedging techniques and investment strategies, through to loan structuring. This comprehensive five day training program covers the most important aspects of commodity markets, related derivatives and financing structures. The course will enable you to: Understand the nature of commodity markets Get to grips with the inner workings of the main commodity sectors and clarify the relevant primary influences Gain an insight into challenges within emerging sectors Develop an awareness of the benchmark commodity futures markets and apply common OTC structures Identify the impact of commodity specific risks and devise strategies to mitigate them Incorporate price risk management alongside physical procurement Understand the products underpinning commodity investment vehicles Select commodity products which best match investment criteria in the prevailing market conditions Evaluate commodity companies Establish appropriate financing structures Tackle day-to-day market reality Includes site visit to The London Metal Exchange Course Methodology A practical, pragmatic approach is adopted throughout. Lecture sessions are reinforced with discussion sessions and a visit to the London Metal Exchange. The course features hands-on case studies exploring the unique characteristics of the markets and offering real-life solutions to real-life scenarios. Site Visit A site visit to the London Metal Exchange (the “LME”) in the heart of the City of London, offers participants the opportunity to witness base metals futures contracts being traded through open-outcry trading in the morning “ring” sessions. The LME was established over 130 years ago and is the world’s premier non-ferrous metals market. Such is the liquidity at the LME that the official settlement prices are recognised and relied upon by industry throughout the world. The visit is designed to give participants the practical context to complement the lecture sessions. Please note the LME operates a smart casual dress code. Who Should Attend Sales, trading and lenders Investors Fund managers Corporate CEOs and CFOs Advisors Risk managers Credit officers Auditors Learning Level A basic knowledge of capital markets, financial mathematics and derivatives is assumed.
Day 1 Introduction to Commodities Definition and classifications Principal price drivers Commodity cycles and recent performance Spot and forward prices Contango, backwardation and convenience yield The Interaction between Physical and Paper Markets Market inter-relationships Physical and paper contracts Delivery and storage Managing physical risk with paper Features of suitable paper products Workshop Participants implement a price risk management strategy in tandem with a physical procurement program Financial Markets for Commodities Futures contracts The main commodity exchanges Size of futures markets Physical and cash settled futures Size of OTC markets Common OTC products Centrally cleared OTCs Workshop Participants devise commodity trading strategies and manage a portfolio in response to market movements All that Glistens Good delivery Allocated and unallocated metal Metal fixings, lease rates and GOFO Metal forward prices Precious metals futures Industry bodies The unique nature of gold - Central banks, producers and investors Silver and PGMs Day 2 Understanding Base Metals The London Metal Exchange and the physical market LME brands Warrants and seller’s option Warehousing and stocks Trading on the LME LME contract dates Price benchmarks Other base metal exchanges Workshop Participants compare London and Shanghai copper prices Introduction to Energy Classifications of crude oil Global crude benchmarks Crude price differentials - Focus on Brent vs WTI Distillates - Gasoline, kerosene, diesel, gasoil, fuel oil & bunkers Trading oil and distillate products Physical assessments Principal energy futures Exchange for physical Cracks and diffs Workshop Participants consider the pricing differentials between high and low sulphur fuel oils in Singapore and Europe Completing the Energy Spectrum Natural gas - LNG and shale gas - European and US gas markets - Oil indexation Coal - Coal classifications - Financial markets for coal - Principal indices Electricity - Load - Marginal fuel - Spark and dark spreads Day 3 Saving the World Carbon trading Kyoto, Copenhagen and beyond Carbon credits Clean development mechanism Joint implementation Emission trading systems The EU ETS - EUAs and CERs Down on the Farm Farming basics Market size Price dynamics Grains - Agflation and biofuels - Corn, wheat and the soy complex - Seasonality and forward prices Softs - Sugar, cocoa, coffee and cocoa Case Study Identifying hedgeable commodity price risks in an agri- business Freight is Great Wet and dry freight Vessels and shipping routes The Baltic Exchange Worldscale and TCE Freight futures and FFAs A Word on Emerging Sectors The plastics experience Big and bulky - steel & iron ore Minor metals Rare earth elements Site visit to the London Metal Exchange Day 4 Principles of Commodity Price Risk Management Price risk challenges Physical contracts and natural hedges Product choice Underpinning business strategy Protection and commitments Accounting implications Structured products Managing Precious Metal Price Risk Lease rates and borrowing costs Forwards, loans and prepays Lease rate swaps Floating forwards Options Case Study Participants determine the cash and physical implications of a floating forward Managing Base Metal Price Risk Drivers of OTC market Carry market Fixed for floating swaps explained Options strategies Workshop Participants analyse a series of physical base metals contracts and suggest hedges to mitigate the price risks and cash flow implications Managing Energy Price Risk Energy swaps conventions Common centrally cleared OTC products Using cracks and diffs Options and swaptions Swing Workshop Participants examine an energy consumer’s hedging strategy Assessing Commodity Risk Market risks Assessing basis risk Rollover risks Model risk Stress testing Operational issues Physical considerations Day 5 Taking a Discretionary Exposure Why invest in commodities? Commodity indices - Traditional indices - Enhanced indices - Rollover risk Exchange Traded Products - ETCs, ETFs, ETNs - Physically backed products Commodity linked notes Workshop Participants determine the optimal issuance environment for a commodity linked note Deconstructing Commodity Companies Reserves, resources and exploration Production assets Purchasing and sales contracts Understanding costs Debt and hedge positions Political risk considerations Financing the Commodity Sector Early stage funding Project & corporate debt - Common hedging strategies Export & trade finance - Tripartite agreements Where should the financier sit? Commodity route to market Return alternatives Workshop Participants combine a hedge programme with trade finance Operational Considerations Life cycle of a commodity trades Documentation Margining and collateral Cash and physical settlements Secured settlement Historical rate rollovers Marking to market Monitoring risk Course summary and close