Commodity trading is a diverse and complex industry. Many people may not realize it, but physical commodity trading is an essential part of daily life, as it moves raw materials from their place of production to their place of consumption.
Whether it is an agricultural produce, energy or metals, almost all commodities have to undergo processing in order to meet the characteristics of final products. The value change of physical commodity trading is complex and involves many participants throughout the world. It is also diverse because it could either be a small local operation or a huge, multinational company.
Here are 5 useful tips for physical commodity exporters:
It is a priority to reduce overall cost without sacrificing overall quality.
One way to reduce overall cost is to develop advanced logistics, which can transform and transport commodities at a lower cost. However, commodity exporters also have the task of making their products globally competitive. Process quality is also important. In a world that is moving towards increased transparency, suppliers need to source from areas that do not threaten the environment and practice ethical working standards.
Securing commodity financing will hedge price risks and mitigate counterparty payment risks.
Securing Commodity Finance will help you with your business because they provide short-term, self-liquidating financing to ensure that cash flow is available for maximum output. Exporters can benefit from commodity finance by mitigating risks, allowing them to mitigate any supply, demand, or price shocks.
Take a closer look at the factors that influence the price of commodities.
Exporters should know the factors that influence the price of commodities. They should be fully aware of these factors and be knowledgeable about them. Two of the most important factors are currency variations and inflation.
There are certain commodities that are influenced by bulk demand and supply.
One of the best examples is industrial metal prices, which are heavily influenced by demand coming from China because they account for 50 per cent of total global consumption. Another example is for the price of crude oil, which is heavily impacted by OPEC actions and the inventory of the U.S.
Give proper importance to quality control measures.
Quality control measures are put in place in order to ensure that commodities delivered meet high standards so that only top-notch products are delivered to buyers.
Commodity exporters have the balancing role of matching supply and demand, and to do so in the most cost-effective way possible. Although it has a number of risks, it can be managed using the correct tools and a keen understanding of these risks.