Applied Essentials - A Concise Guide to the Commodity Markets

Jacket text for Applied Essentials - A Concise Guide to the Commodity Markets

This book is a comprehensive and practical guide to the principal commodity markets written by an experienced practitioner. Commodity markets are by no means perfect; at best they are opaque. Participants who blindly apply complex theoretical models to these markets often come to grief. This book gives the market newcomer a framework to facilitate successful commodity price risk management, learning from others' past mistakes, and taking into account the real and tangible nature of the physical underlying.

Commonalities with and differences to other financial markets are discussed. The impact of fundamental commodity concepts such as contango, backwardation, physical delivery and storage on paper commodity markets are explored. The largest commodity markets (namely metals, energy and agricultural products) are presented in detail, together with their specific characteristics. Structures appropriate for market participants with real commodity exposures are presented, tailored by commodity sector where appropriate. Investors, those market participants with a discretionary commodity exposure, have come to play an increasingly important role in commodity price dynamics. Investor product evolution and its impact on the global commodity markets are discussed. Consideration is also given to the house-keeping aspects of trade execution, documentation and life-of-trade management.

This book is a distillation of the author's experiences and aims to be the book she wishes she had on her desk when she first moved into the weird and wonderful world of commodities.

Chapter headings for Applied Essentials - A Concise Guide to the Commodity Markets

1. Introduction to commodities
a. What is a commodity?
b. Why are commodities different to other financial assets?
c. Convenience yield, backwardation and contango
d. Commodity Cycles
e. Fundamental analysis
f. A short word on technical analysis

2. The Inter-relationship between physical and paper markets
a. The four components of commodity trade
b. Storage and transportation
c. Consignments
d. Managing physical inventory in conjunction with paper markets
e. Real options

3. A general overview of paper markets for commodities
a. Forwards and futures
b. OTC
c. Basic introduction to common OTC structures

4. Focus on Specific Commodity Sectors
a. Precious Metals - Gold, Silver, Platinum, Palladium
b. Base Metals - Copper, Aluminium, Nickel, Lead, Zinc, Tin
c. Crude Oil and Distillates
d. Other Energy Commodities - Coal, electricity, emissions, biofuels
e. Grain, Oilseeds and Softs - Corn, wheat, soybeans, coffee, sugar, [cotton, cocoa]

5. Principles of Managing Commodity Price Risk
a. General concepts
b. Precious Metals
i. Fixed and floating forwards
ii. Spot deferreds
iii. Lease rate swaps
iv. Gold loans
v. Prepaid forwards
c. Base Metals
i. The carry market
ii. Off-take contracts
iii. Swaps
iv. Options
d. Energy
i. Cracks
ii. Diffs
iii. Three-ways
iv. Extendibles

6. Including Commodities in an investment portfolio
a. Why invest in commodities
b. Impact of investor participation
c. Product evolution
i. Indices
ii. Smart indices
iii. Commodity linked notes
iv. Exchange traded commodities

7. Practical aspects of managing a commodity portfolio
a. Execution
b. Confirmation
c. Documentation
d. Audit considerations
e. Living with reality
i. Pre-delivery
ii. Historical rate rollovers
iii. Location swaps
f. Benchmarking market curves

About Emma Jenkins

Emma Jenkins is currently the managing director of EJJ International Limited, a niche consultancy specialising in commodity related projects and training. Emma has extensive financial markets experience covering fixed income, FX and commodity markets, derivative pricing and structuring, and loan origination. After graduating from Trinity College, Dublin, with a first class honours degree and a gold medal in Mathematics, Emma joined the graduate program at Goldman Sachs. She subsequently moved to a quantitative role at Westpac Banking Corporation designing and implementing derivative pricing models for interest rates and FX trading desks. Emma entered the commodity arena while working for Credit Suisse in the late 1990s. She was responsible for marketing complex hedge structures in precious metals and associated financings. In her final banking role at Macquarie Bank she was a specialist commodity director, providing a complete banking service to clients in the base and precious metals, and oil and gas sectors. Since founding EJJ International, Emma has enjoyed varied international assignments with a broad range of clients including producers, manufacturers, fund managers and market regulators. She is a regular speaker at industry conferences and frequently delivers specialised seminars.

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