Haffkin-Roth Research Department Releases Commodities Market Analysis Findings
Commodity trading companies - Centralizing trade for competitive advantage.
- (1888PressRelease) November 23, 2012 - As commodities trading continue to globalize, many of the world's biggest oil and gas and mining majors have set up commodity trading structures. A new report from Haffkin-Roth titled International Commodity trading companies - Centralizing trade as a critical success factor was recently developed based on the views of professionals from Haffkin-Roth' partner firms worldwide who specialize in a range of global tax and advisory disciplines to help energy and natural resources companies understand the substantial benefits and risk management issues involved in these complex operations.
"An international commodity trading company is a distinct, specialized entity set up to centrally manages trading activities for specific commodities in the oil and gas and mining industries," said Seung Chang-uk Haffkin-Roth' General Manager. "With one or a few of these specialized entities, a corporate group can unify its global trading and marketing activities. That way, they can better manage and meet customer demand while improving their profit margins at the same time."
Strategically, commercially and logistically, the benefits of international trading structures for global commodity trading are clear. The most important of these benefits are:
Dynamic supply chain management. Centralizing trading and marketing activities in one or a few locations allows companies to consolidate sources of supply so they can better manage and meet customer demand.
24-hour trading. With multiple trading companies in various time zones across the globe, the group of companies can boost its margins with non-stop trading as the world's exchanges open and close.
Logistical efficiency. The ability to mix and match supplies from multiple sources also allows for greater supply chain stability, which can translate into higher trading margins. By making it easier to swap freight, companies can reduce their high haulage and control costs and improve logistics.
From North America and Europe to the Middle East and Asia, a number of locations around the world have emerged as vibrant centers for this activity. Preferred locations have investment-friendly government policies, strategic proximity to markets, and good financial services infrastructures.
But wherever they are located, international trading companies face a world of risks. Given their complex supply chains and the scope of their activities, commodity trading companies must manage their way through an intricate web of cross-border income tax, value added tax (VAT) and customs issues. They must also be ready to defend their transactions and structures against growing aggression and heightened scrutiny on the part of some tax authorities.
Looking ahead, strategically, commercially and logistically, the benefits of Haffkin-Roth' international trading structures for global commodity trading are clear.
Many of the world's major oil and gas and mining companies have already established international trading structures to gain competitive advantage, and the trend toward centralized trading is expected to continue. National oil companies are also centralizing their trading activities in key international trading centers. As the majors consolidate their supply chains, downstream service companies are under pressure but have opportunities to diversify their activities.
Centralization and cross-pollination with members of the banking sector is allowing pure energy producers and mining companies to take part in a more diverse range of financial activities.
The greatest uncertainty of international trading companies is the specter of more stringent tax and trading regulation.
Commodity prices will dictate the future of international trading companies. As long as commodity prices remain high, the trend toward centralization in favorable trading locations will continue.
Meanwhile, centralization is allowing pure energy producers and mining companies to evolve from supply chain trading toward a more diverse range of financial activities, from hedging and proprietary trading to treasury functions. In Switzerland, banks and energy companies are developing highly sophisticated hedging products to protect their market positions, encouraging more divergence of banks into the commodity markets. Cross-pollination is encouraging a mutually beneficial blending of the two industries as financial executives travel between the two industries.
As long as commodity prices remain high, the trend toward centralization in favorable trading locations will continue.
But if the world's commodity prices experience a sustained decline, this business model may falter as companies with losses decide to keep more of their trading activities in higher tax locations.
Haffkin-Roth is a pre-eminent provider of alternative investments. Our mission is to find the best alternative investment managers and bring them to our clients through alternative mutual funds, private funds, and futures managed accounts. Our suite of products is sold through the intermediary channel, including clearing houses, independent broker/dealers and registered investment advisors. We also have a robust Private Client Group that works directly with high net worth individuals and family of Haffkin-Roth. We pride ourselves on our people and are strongly committed to our company motto: Trusted Alternatives. Intelligent Investing.
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