We have often heard from CTRM vendors touting their ability to handle multiple commodities and commodity types in a single platform, spanning from energies such as natural gas, hydrocarbon liquids, and power, to metals including base metals, ores and concentrates, and to ags and softs. However, digging a bit deeper into these systems, it’s not unusual to find that while many can model a variety of contract types and even occasionally the logistics of multiple commodities, they often fall short in the area of modeling price terms – particularly for those commodities that have complex pricing based on numerous quality or physical characteristics such as those associated with cotton or metal concentrates. In these cases, some of these “multi-commodity” systems require workarounds up to and including the use of outside spreadsheets to calculate prices, positions & exposures – effectively defeating much of the value of trying to utilize a single platform to manage all your commodity trading activity. Other issues, such as specific reporting requirements, complex units of measure conversions, supply chain and logistics tracking can also be remarkably different for specific commodities at a certain level of required detail.
Recently, we had the opportunity to visit with Enuit’s senior management team, including David Meyers, president and Ken Han, CEO, to get a demonstration of their system, Entrade, and its ability to manage multiple commodities. Though generally still thought of as an energy commodity solution (gas, power, NGL’s, LNG, etc.), the company has been working with their clients to build-out capabilities to address metals, metal concentrates, iron ore and other commodities.
Metal concentrates are particularly challenging for most CTRM and CM systems, as metal ores purchased for processing into concentrates and/or concentrates acquired for smelting will have numerous quality and physical characteristics that impact pricing – including premiums/discounts applied in tiers for specific metals and other elements found in the product (such as gold, silver or copper commonly found in zinc ore), complex penalties for impurities and multiple unit conversions, to mention a few. The ability to accurately capture and value a concentrates deal is a pretty good indicator that a system can manage the most complex commodities. In demoing their capabilities in metal concentrates, Mr. Han noted, “In working with our customers to deliver these capabilities, we weren’t just trying to capture new types of trades in the system, we were working diligently to ensure that those deals were tracked and accurately valued all along the value chain from purchase order to settlement.”
We both walked away from the demo quite impressed with the depth of capabilities they showed in metals concentrates and other areas like iron ore support. Given the level of detail they have been able to model for these deals, it’s clear the Entrade system does have the capability to address numerous other complex commodities. That said, Mr. Meyers did note that “While we’re pretty sure our system can cover most ag products, we don’t claim to be experts in those markets. However, if one of our customers, or a prospect for that matter, that trades ags wants to use our system to manage those commodities, we’re certainly happy to work with them to do that.”
Designing a solution to manage multiple commodities in a single platform is difficult. As Mr. Meyers stressed, “We want the market to view Enuit as a premium product with extensive capabilities across numerous commodities.” Of course, one potential downside in building a solution that can handle multiple commodities, and classes of commodities, without the need for enhancements is that you do need to do some fairly complex front-end configuration as new commodities are added. However, that’s OK if the system works and produces accurate results. We have seen some several other concentrates solutions recently and they are all quite complex on the front-end. This should actually be considered a ‘feature’ when dealing with metals concentrates and similar commodities; and there’s no doubt those capabilities will be welcomed by users who have used more simplistic solutions to try to address these types of commodities, only to be forced off-system and onto spreadsheets to handle their business.
Based on the demo, it’s clear to us that Entrade can handle the most complex commodities in depth. Though it hasn’t yet been sold into all commodities markets yet, it does appear to have the potential to be successful across all commodity classes by virtue of it being designed to be commodity agnostic, yet deeply commodity-specific via configuration and set up. As such, it is a compelling competitor to other multi-commodity CTRM/CM platforms on the market. With offices, including local sales and support teams, in North America, Europe and Asia, including China, Enuit is now well-positioned as a global supplier and we’ll be following their progress over the coming months with interest.
ABOUT ENTRADE FOR ETRM / CTRM
SERVICES AND SUPPORT
Managment Training and Consulting
Trading and Risk Management Consulting