Commodities Markets, Derivatives & Finance

Course Overview The commodities 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 at the beginning of the century and suffered a sharp pull back as a consequence of the global financial crisis. Attending this course will help you understand the structural re-adjustments taking place and be best positioned to profit from changes in commodity trading behaviour. This course clarifies the primary influences on the major commodity sectors and equips you with tools to assess the risk inherent in commodity related strategies. It covers important topics in the commodity sector, from hedging techniques and investment strategies, through to loan structuring. Summary of course content Understand the nature of commodity markets Get to grips with the inner workings of the main commodity sectors and clarify the relevant primary influences 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 Establish appropriate financing structures Tackle day-to-day market reality Methodology A practical and pragmatic approach is adopted throughout. Lectures are reinforced with discussion sessions and workshops, many of which focus on the Asian region. This course features hands-on case studies exploring the unique characteristics of individual markets and offering practical solutions to real-life scenarios. All delegates should bring their calculators to facilitate in-class studies and exercises. Learning Level Delegates should have a basic knowledge of capital markets, financial mathematics and derivatives. Who should attend? Sales and Traders Investment Bankers Relationship Managers Audit, Legal, Credit and Lending Officers Fund Managers Head of Investment Finance Directors and Treasurers Procurement Managers Risk Managers Corporate CEOs & CFOs Supporting publication:
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 Macro-economic influences 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 programme 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 (LME) 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 and 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 and oilseeds Agflation and biofuels Corn and wheat The soy complex and palm oil 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 Devising a commodity hedging strategy Price risk challenges Physical contracts and natural hedges Product choice Underpinning business strategy Protection and commitments Accounting implications Structured products Workshop: Participants analyse a series of physical base metals contracts and suggest hedges to mitigate the price risks and cash flow implications Day 4 Managing commodity price risk Benchmarks and conventions Forwards, loans and prepays Lease rate swaps and floating forwards Fixed for floating swaps explained Options strategies Using cracks and diffs Options, swaptions and swing Workshop: Participants examine an energy consumer's hedging strategy Financing the commodity sector Early stage funding Project and corporate debt Export and trade finance Tripartite agreements Where should the financier sit? Commodity route to market Return alternatives Workshop: Participants combine a hedge programme with trade finance 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 Assessing commodity risk Market risks Assessing basis risk Rollover risks Model risk Stress testing Operational issues Physical considerations Concluding summary and questions