AMA: I'm a Dry Bulk Physical Trader

I'm a Physical Trader in the Asia region and look after a combined book of +1Mt for origination and sales of dry-bulk commodities. My background has been in some way or form of international trade, with 6+ years in operations before getting into a trading gig. I trade majority of dry bulk raw materials related to construction, power, steel (except coking coal and iron ore) industries to waste products which range from container cargoes upto capesizes. Even tried to dabble a little bit in alumina for a short I had once but proved to be difficult due to tight supply and restrictive channels.

The beauty about the space I deal in is I see products which trade on indices that give market players a form of price discovery, and products which people have never heard of outside your typical oil/metals/ag markets. A market where price liquidity is out the window, therefore being on the ground and engaging with counterparties in person is a huge part of the job. Relationships are key in getting deals done in this space, and personal brand is important.

Ask me anything - I'll do my best to answer within my knowledge.

I would prefer not to discuss any salary/bonus questions as it has been covered many times before in other posts.

Comments (73)

Mar 23, 2019

Thanks for doing this.

  1. What kind of firm do you do this for? A western trading company? One of the Japanese guys? A cement/construction company trading arm? Your own shop?
  2. You said alumina was tough, any more luck on bauxite?
  3. Sounds like a very broad spread of materials. How do you keep your book manageable? A more limited set of counterparties?
Mar 24, 2019
  1. I don't want to be too specific, but I can say it's a European trading house with a large portfolio of commodities, with multiple offices located on every continent. There are only a few large western trading houses that really compete against us in this space and some of the Japanese trading houses are expanding aggressively.
  2. Yes, trading some spot cargoes into alumina refineries and clinker/cement kilns. Bauxite is an easier space to break into versus alumina.
  3. It is a mixture of limited counterparties for certain products, and specific trading strategies. For instance for bigger volume products like thermal coal we would set a % of our book on long with the balance for spot throughout the year. We'd sell x amount to our selected counterparties on term basis and use our remaining on book for spot deals, and if market presents an opportunity for spot purchases we'd buy on book, and if there's opportunity for a phys swap then we look to free out a committed cargo for another market to make more profits. Some commodities have seasonal or cyclical cycles which give us a different strategy for trading, so I try to look at the trade book on either term / spot basis and progress from there. An example, slag byproducts, I've seen deals between a buyer/seller locked in for 1 up to 4 years in the market.
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Mar 24, 2019

Thanks, I suspect we look at some of the same stuff on occasion.

Mar 30, 2019

Great insight

Apr 10, 2019

3) Coal from Kalimantan is a murky business. The guy that races Rally cars here in Malaysia is the team lead for selling the stuff that loads from the barge at Taboneo. Australia is doing a lot of M&A with their mines. Reading the CSC annual report incidated a +30% price hike in Coking coal. They are doing 11MMT a year and asked around for another 2MMT. When I called around SE Asia, everyone not only knew of CSC's order but even after lowering the specs a few times they couldn't get additional supply. Hmmm...

How do you deal with the Legal issues and Damages when Supplier doesn't play ball or loads off-spec cargo to the Buyer?

Reason I mentioned coal is because someone I know that used to work at the Morgan Stanley desk in Singapore warned me to not deal with those Haji's from Kalimantan and that Coal is not as fungible as other Commodities and therefore very tricky to deal with. The specs of the Coal I've seen from that part of the world is somewhere like 30-40% Water by weight. The Thermal or Coking Coal from that same part of the world has specs way out of what the Steel mills want. Not sure who their actual customers to be honest but they are making a fortune.

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Mar 23, 2019

What disruption, if any, do you see from online marketplace solutions in your industry? I've heard of this happening in other commodity spaces; they do some kind of verification of market participants and have buyers bid on lots. Thanks!

Mar 24, 2019

To be frank, not much disruption. We do have trayports etc for specific commodities but on average there aren't much bids/offers. Price transparency is what most traders/producers don't want buyers/sellers to know. So really getting the liquidity on a trading portal is tough, however in saying this you do see from time to time trades transact but depends on supply/demand fundamentals. Usually when miners/traders have got so much on book they can't get rid of they offer on screen, and reverse - usually they can be good times to buy/sell.

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Mar 24, 2019

Great, thanks!

Mar 23, 2019

What do you think of NMM? Seems so undervalued...

Mar 24, 2019

Honestly I don't know much about their fleet/operations to comment.

Mar 23, 2019

whats your comp?

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Mar 24, 2019

Salary has been covered in many past posts before for phys trading so I don't want to comment on that. But my comp structure is base + company performance bonus + % of book.

Apr 6, 2019

Which posts are you referring to? I dont see anything recent

Mar 24, 2019

A family member was dating a member of the party in China (dont ask) and I essentially can to to grad school for free as an intl student. One of the grad degrees is international logistics.

Is that a good way to get into a big commodity trading shop?

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Mar 24, 2019

Most common grad degrees I've come across is Economics & Commerce, International Business, Logistics, Engineering (more common in Europe), and Accounting. There are also quite a few with diplomas in Maritime Shipping as well and not holding any degrees in Asia. It can be hard without a degree in this day and age as majority of job postings require some from a top 10-30% college/university to be shortlisted.

There isn't a clear defined path into commodity trading, the best way to get a foot in the door is to network with traders/employers. International logistics is good if you can make use of it to secure an internship just like any other degree. Most if not all shops would hire a newstarter into a operational / finance type of role. People who are hired as jnr traders from what I've seen aren't necessarily trading, still doing operations for a trader/snr trader and managing a small account if they view that they can handle the added responsibility.

But it does take time, and there is so many things to learn on the job where a degree teaches you a fraction of what you really do on the job. The important takeaway is don't make a job title dictate what you do on a daily basis. We see people who do more than what their job entitles and usually they are the ones that traders want under their wing.

Attitude is something a college degree can never teach you.

In hindsight, if I had the opportunity to live overseas in a foreign country while studying I would do it without hesitation. It would be a great conversational starter in any social setting/job interview, and a bonus to learn a different culture.

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Apr 27, 2019

You said, 'don't make a job title dictate what you do on a daily basis'. So, do you mean to say its better to stick to what the role is about, or is it better to do more than what the job role entitles?

Mar 24, 2019

Thanks for doing this. This is why I come here. Can you elaborate on the boots on the ground type relationships you mentioned? Is that fairly common in the space?

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Mar 24, 2019

I like to use a lot of analogies when I'm explaining things so best to describe it would be like any relationship, whether its personal or professional. Best way to build a relationship with a girlfriend, family member, colleague is engagement. Being engaged in person and having regular communication is important when you get to know someone, and longer when it's building trust and rapport.

It's quite common for traders to be travelling (international or domestic) visiting suppliers/customers either for coffee, lunch, dinner or just a catch up on a personal level. A successful trader is one that understands the constraints and advantages of a supplier/customer's supply chain, product quality, and working style - and the best way of understanding is being on the ground and engaging in their business.

For example, if you had a customer that's dependent on 50% imported material and balance of their own production, if you learn there is a potential production shortfall (from someone working at the mill, or market intel elsewhere) in 2 months you can capitalize by locking in a cargo in advance for a short you anticipate. Assuming quality is important to this buyer, and they only use 2 miners/producers in the region, and if 1 miner/producer will be short in supply for the next month and the other has no spot volume, then you would lock in the available tons for this scenario. Assuming transit time between country X to country Y takes roughly 30 days, and buyer in 2 months loses about 50,000 tons of production from their mill, and you're the only one to have the only available material (1 month prior) that meets requirements, then you are sitting in a very good spot.

This is only achievable if you have good market information, and only obtained by being on the ground and having those close relationships.

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Mar 24, 2019

Very cool, what's the process behind managing those relationships? Are you using a crm/taking notes on every conv?

Mar 25, 2019

What is your view of large commodity buyers like COFCO or Mitsui? Sometimes I believe their purchasing rationales seem distorted by cheap balance sheet - either by extending a large amount of pre-pay with a lower price, or purchasing size at a premium to lock up market share.

It's all fine, but I sometimes wonder if it creates distortions in less-liquid products such as your markets.

Mar 26, 2019

I view the Japanese and Chinese large commodity buyers differently. Japan has a stringent review process, and if they were to finance (pre-payment) or get equity in a company with a view of securing raw materials/market share they manage it quite well - but it's a relatively slow moving process.

The distortions mainly come from Chinese buyers (cheap balance sheet as you said), they tend to have a quicker decision making process and at times would just jump into a deal by gut feel more so than thorough due diligence - at least the companies I've seen.

An example would be Japanese having huge market share in wood pellet trades, and barrier to entry is quite hard as supply is limited for good quality product. They either pre-pay finance or provide ongoing finance for equity and marketing rights.

In contrast, a Chinese company decides to shift cash outside of mainland and decides to build a large plant in South East Asia (literally where it makes no economic sense, and puts further strain on S/D dynamics) with a view to export product back into China. Just because they have cash to throw around they think its a good idea to build a 5 star hotel right next door for people visiting (costing $25 million US - FWIW this actually happened).

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Mar 27, 2019

Thank you for doing this UnfinishedSentenc!

Very interesting as on physical trading there is limited information, and most come from news articles and piecemeal articles.

Great to be able to ask anything to a physical trader!

Trading is understood to be revolve on the three arbitrages: time, quality and geography.

Do you agree? If so, which one in your space do you trade upon the most?

Coming to big players, I was told it is most important for a trader to lock-in supply rather than a buyer, hence parties usually prepay. Do you agree? Or is it better to have a buyer and fill that request?

Mar 28, 2019

Thanks for the AMA.

What got you started in the industry?

What books would you recommend in reading if someone were interested in joining in?

No pain no game.

Mar 31, 2019

I started in operations from advice from a college friend to develop on the ground experience if I didn't get into a trading gig straight from school. So I had my career path set and all I had to do was figure out how I got there. Started in operations and along the way I ventured into other roles to build my profile, salary, and fill the void. I networked with traders, and at the same time studied products that I thought had the opportunity to trade internationally. When applying for jobs didn't work out I started to think differently. I created business plans on commodities which I researched and developed sources and contacts where I could potentially purchase and created a marketing strategy. I eventually gave business proposals to traders that I became acquainted with (fairly large shops too) and down the road quite a few traders took notice and eventually landed a gig.

The most important thing to stand out from the crowd is having the right attitude. Like I mentioned before, attitude is something you can't teach. The successful traders I see are the ones who are persistent and don't get demotivated when something doesn't go their way. Emotional intelligence is a good skill to have and the ability to read people. I see trading as a game, and sometimes you win sometimes you lose, but you will learn each time and the more you keep at it the better you get (hopefully).

I don't particularly have any books I could recommend other than "King of Oil" for enjoyment purposes. Being up to date with world news e.g US negotiations with China on the trade agreement etc, understanding the macro environment will help you understand how international trade gets affected. They are good conversational starters when you network with people, and pretty important in the trading world.

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Jul 15, 2019

Perhaps missed it in any other thread, but was wondering whether age matters? Could you still switch to becoming a trader at 40+? Without starting your own company? Seen that most advice for breaking in was through related fields and demonstrate a trading acumen? Have you seen a lot of traffic people/ TF ops become a trader?

Mar 28, 2019

You mentioned you trade various bulk dry commodities. Is it common to trade multi / cross commodities? I always thought specialisation, i.e. focus on a single commodity, would you yield better results (economies of scope rather than scale). In addition, how is risk management done with various (different) commodities?

Mar 31, 2019

I prefer looking at multiple commodities because it gives me good insight of different markets. Not all traders in my organization have that responsibility so I'm quite lucky, but the workload is increased significantly and the expectations are greater when you have volume requirements that has to be met.

Risk is universal for the products I trade. Counterparty (credit), price, operational risks are always there.

A lot of counterparties I work with only deal with single commodities, and when markets get tough or bearish they usually are sitting at their desks waiting for something to happen. I usually always have something to do to keep me busy which I enjoy.

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Mar 30, 2019

This is a great post. I have a couple of questions:
1. Whats' your view on IMO 2020 impact?
2. how do you think LNG industry can keep the actual spread it has in terms of arbitrage opportunities?

Really interested in hearing your pov!

Apr 1, 2019

Good questions

  1. There is no doubt there will be increases in freight costs going forward 2020. The big question is how shipowners will hedge their bunker exposure. Of all the owners I have spoken with they are unsure when the right timing is to hedge and uncertain how much supply of low sulphur vs high sulphur fuel will be made available to the market. Another important factor to consider is the age of the fleet and would it be a good idea to fit in scrubbers but how many years would it take to pay off the investment vs how long till they decommission the vessel vs the supply of HFO and will there be enough supply available? It is just a wait and see game right now and I don't think any shipowner wants to take a huge bet. Naturally because of this we're already seeing BAF adjustments on rates in the market from Q3-Q4 this year.
  2. Right now the availability of a worldwide infrastructure for LNG is pretty much underdeveloped. It is the same questions raised above, if an owner was to invest for a ship to use LNG they have to consider how much supply of LNG will be readily available and which ports they can bunker in etc. I don't know how to best answer this question as its a double-edged sword because you can say that good arbs can be open if there is less port call options for LNG versus if LNG is widely available then fuel oil pricing will have to find a way to balance against supply/demand and that might present less arb opportunities as there will be more demand of LNG which in turn will attract at a higher cost.
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Apr 1, 2019

Thanks for this - not OP but I'm tangentially involved with LNG (nowhere near physical trading, at an energy PE shop operating in the space). From my limited experience it seemed as if the LNG market was one of the more transparent/developed in terms of commodities, especially compared to, say, minerals. There's also talk of American projects racing to completion at breakneck speeds, leading to oversupply problems down the road as Asia won't have the demand to justify an increase in offtake - your take on those thoughts?

Also, just curious if you ever see corporate types (IB/PE) move into the physical space? Have been wondering if the path is potentially open,

Array

Apr 1, 2019

Very informative thread, thanks for doing this. I was wondering, what's the work/life balance? How often do you travel? Do you have a family?

Apr 5, 2019

YMMV with different shops but I'm always interested to hear how other traders answer this question. Simply put, I work and live my life around it.

I travel anywhere between 4-6 months in the year, and travel plenty on weekends and public holidays because its required to fix a deal or fix major problems. Yes I do have a family, and I have to put in a lot of extra work/effort to make them feel I'm not a stranger in their life. So when I'm home and not travelling I try to be around as much as possible.

Being a trader means you are on call 24/7, even if I'm at home I am still working and taking phone calls, speaking with one of our sourcing guys half way across the world because it's his 5am and my 10pm. The hardest part of the job is it tends to make you into a workaholic, and if you love what you do and have a family then you need to find that balance to fit your life in between your work.

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Apr 4, 2019

Thanks for doing this. I have a couple of questions:

Since there is limited price transparency in the commodity markets specially in the sectors that you are working in do trading houses try and manipulate the prices? Have you seen any large player trying to squeeze the market in one of the less liquid spaces?
Since you are in the Asia region are you based out of Singapore or some other city?
What advice would you give to make the most of a Operations role in commodities?

Apr 5, 2019
  1. That's an interesting question. Price manipulation is usually leaned towards the derivatives market in physical trading but the possibility would always exist for opaque products, such as agreed price fixing. There are quite a few known cases in the past during the 90s and 2000s where large producers agreed in cohesion.
  2. Yes.
  3. I don't want to be too specific sorry - it's a small market.
  4. Be able to perform your tasks autonomously and support your trader/desk well. It means to do things without being told to do, and fix issues before they arise or act quickly when they do. If you can do this and present yourself as someone who isn't afraid of a challenge and can take on more responsibilities then your trader and others will notice. If a trader takes you out to a meeting just make sure you be his/her right hand and take note of whats important to remember. It's always good to have a second pair of eyes/ears to verify what he/she heard is correct, and you might start seeing yourself being asked to accompany them more often. Other than this, enjoy your time in operations because all the knowledge you learn here set your foundation going forward. Understand your trade flows and logistics barriers as they will give you specific set of skills when you need to assess if a deal is a loss making or a golden goose.
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Apr 4, 2019

Appreciate again your feedback on my other questions. Was wondering whether you could shed light on a physical trader's calculus when examining a potential deal.

Does it goes like:
Size of the potential spread minus (freight, finance, insurance, hedge, tax, etc) = profit?

What is usually the biggest cost determinant at inception, and at post deal close the biggest risk from a cost perspective?

Apr 18, 2019

Physical trader's calculus:

Shipment qty: 80,000mt (+/-10%)
Net FOB: $50.67/t
Freight: $15.00/t
Finance: $0.17/t basis T/T 90 days
Margin: $3.04/t (6% of Net FOB) minus L/C cost with supplier
Offer CFR: $68.88
Total profit: $243,200 minus L/C cost with supplier

You would consider your lay time settlements or quality issues which will ultimately impact your overall profit for the trade. If it's a risky deal then I would be asking for a higher number to account for any losses to complete the trade.

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Apr 19, 2019

My observations.

$15/Mt= short haul has to be (regional)
than how a 6% margin would be justified or why the local competitor not underbid you if so wide...

I will be the 1st to trade at 6% margin but what you seems to describe is so old-school . today to get 6% you have to blend different qualities, then pay for more cargoes and fixed infrastructure adding other costs.

I give you all benefits of a doubt, say the 6% hold. but then I look at your finance costs.
I see a major problem

  • 80000MT x(50,67+15)= $5,253,600 value cargo
    80,000 X 0,17= $13,600 finance costs

$13,600/$5,253,600
=0,25% l/c finance costs... almost zero

  • I think you have to revise this number a little bit more upward.

P.S for the bank, only the b-even to administer this trade is like 85,000.
starts to make a profit at 100,000

adjustments factored in I am now at $1-1.5/MT profit
you be in big trouble if have other issues out of your control.

Personal opinion: I would not bother on a trade like this.
Would Just sell FOB to someone in the trade, just like your company, who thinks can still make money.
I don't see a positive Risk/payoff.

May 5, 2019
UnfinishedSentenc:

You would consider your lay time settlements or quality issues which will ultimately impact your overall profit for the trade. If it's a risky deal then I would be asking for a higher number to account for any losses to complete the trade.

So it is safe to say operational risk from transportation and quality are the usual surprises post trade? If so, how do you mitigate them without resorting to legal actions? Additional price discounts, waiving costs?

Apr 6, 2019

What are some crazy things that happened on the job ? At Glencore oil trading I hear they dealt with Russian ship guards to protect tankers from Nigerian pirates in the Lagos harbor region.

D.I.

Apr 8, 2019

Maybe but I wouldn't like to believe such stories because there are so many strange facts and confusion. I'm looking for strong proofs in such situations.

Apr 9, 2019

lol look up GLENCORE OIL NIGERIA ALEX BEARD RUSSIA in google

D.I.

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Apr 9, 2019

Anti-piracy is hardly crazy - guards are commonplace in the GA and not uncommon in West Africa. Anti-piracy technology and protocol is standard worldwide. It seems made up and archaic, but at the end of the day, it's no different than any other criminals that have been around forever. Does it seem crazy that there are prostitutes in London or pickpockets in Shanghai?

Apr 18, 2019
oligarch:

What are some crazy things that happened on the job ? At Glencore oil trading I hear they dealt with Russian ship guards to protect tankers from Nigerian pirates in the Lagos harbor region.

Sorry but a public forum would probably be the last place to boast about crazy things...

Apr 7, 2019

Not sure if you're still answering questions, but have always found it interesting reading about the differences/similarities with commodities different to mine, so have a few questions if you don't mind

What sort of directional risk taking are you doing? Everything I read is physical traders playing down the amount of flat price risk they're taking, but from my experience (admittedly, only 2 different companies) the flat price limits are fairly significant. Is this the case with you too?

How common are warehouse networks in the commodities you trade? Do you have something similar to the LME warehouses or grain elevator networks? or are you shipping direct from producer to end user?

How common is it for you take 'paper' positions in the phys market? Say buy FIS at a warehouse in location A, sell FOB in location B, then when/if that spread comes in, sell off your length FIS and cover the short by buying back a FOB cargo at the same location, never taking physical delivery of anything.

You mentioned something above that I found pretty interesting;
"Assuming quality is important to this buyer, ... they only use 2 miners/producers in the region"

How common is this? Making an offer that specifies that it's company XYZs product? Do certain producers have the own 'brand' that you would mention when marketing a cargo that originated from them? The closest thing I've seen to this would simply be stating the country of origin when making an offer or something like that.

Sorry about the long post

Apr 18, 2019
softtrader:

What sort of directional risk taking are you doing? Everything I read is physical traders playing down the amount of flat price risk they're taking, but from my experience (admittedly, only 2 different companies) the flat price limits are fairly significant. Is this the case with you too?

It depends on the product and desk, but yes on products that don't have paper to hedge we take some significant flat price risk depending where we see bullish or bearish sentiment. One of our guys shorted a product recently at a fixed price lower than market by discount of -$5/t for a shipment +2 months loading. It was a stupid decision at the time as he thought we had a cargo backing this but producer pulled out. Now he can generate +$5/t by buying on spot without adding any margin and well in the green for the target month he needs.

softtrader:

How common are warehouse networks in the commodities you trade? Do you have something similar to the LME warehouses or grain elevator networks? or are you shipping direct from producer to end user?

Depends on product again, as most of time our bulks would be stockpiled at a port facility. I try not to meddle into warehousing unless a buyer really needs this service.

softtrader:

How common is it for you take 'paper' positions in the phys market? Say buy FIS at a warehouse in location A, sell FOB in location B, then when/if that spread comes in, sell off your length FIS and cover the short by buying back a FOB cargo at the same location, never taking physical delivery of anything.

More common for us would be buying FOB and instead of taking delivery of product we would sell FOB to another counter party. It makes up a chain of buyers and sellers, sometimes up to 10 long before final buyer takes the delivery and organizes shipping. It can be a total mess for the L/C process. For your scenario it can happen but occurs rarely, because we'd always have to take physical delivery if we buy back our FOB cargo because there would be the physical transaction where we bought already to fulfill our short. We only use paper to hedge our physical transaction - it would have to be a great spread for us to consider it.

softtrader:

You mentioned something above that I found pretty interesting;
"Assuming quality is important to this buyer, ... they only use 2 miners/producers in the region"
How common is this? Making an offer that specifies that it's company XYZs product? Do certain producers have the own 'brand' that you would mention when marketing a cargo that originated from them? The closest thing I've seen to this would simply be stating the country of origin when making an offer or something like that.

Quite common. We market cargoes from producers exclusively as well and their brand is well known in the market as being the best for certain characteristics.

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Apr 17, 2019

I like your AMA and answers.

topic "commodity trading is dead"
when it was 2004-2010, excessive amount of money have been made in dry bulk commos.
I mean really people sitting on ships, doing the same thing year after year always Bigger (cement, steel, wood backhaul etc). and from what I read It doesnt seem that your company takes punts. or control a resource.
back to back in the days was 15-20$/MT, now 2-3$/MT if lucky

dry bulk ship owners lose and lose, restructure many times
The commodities you mentioned "dry bulk" are not very very "physical".
All is left is volume (enormeous turnout).

I dont know if its oversupply or lack of growth or too much people in the same trade...the thang is that There are not many arbitrages left in X, in Y, or Z.
Even Cargill lost on chartering these dry bulks... all they do is match buyers mills and sellers, 300 ships a day, lot of operations but the third-party shipping at Cargill-Geneva had to cut losses.

I am just saying, your AMA is interesting but the reality of the business is today, on the margin, there is no money in these trades. what will happen to these jobs ?

Some projections

5 jobs have to become merged INTO 1. "Be able to perform everything, racing at a low-cost"
We are at the age of outsourcing trading to India where Salaries are at least 5X lower. Seen at TRAFIGURA
The Party is Over.

Apr 18, 2019

Actually my company is known to take punts and controls a huge resource, and to clarify I don't work for a dry bulk shipowner or freight trade. I trade very very physical product.

I disagree on not many abritrages left, if we use cement as an example, there is a thriving global market right now. Demand is picking up especially in Asia which is driving good price swings which have been creating arb opportunities. There are some well known traders who made big money in the past trading iron ore who are taking up positions in cement.

Trafi outsourced mainly their back office operations to India. All contracts, laytime settlements, etc are managed in Mumbai. It's a sensible decision to have a cheaper workforce based out of India rather than Geneva, Singapore, Houston.

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Apr 19, 2019

"It's a sensible decision to have a cheaper workforce based out of India rather than Geneva, Singapore, Houston."

Makes senses yes, if your margins are 3X-5X margins lower then they were and you want to continue doing the same trade... year after year. cut costs. For an Indian it's a good deal 35K a year, in New York not great.

BUT Other cos dont need to outsource to india, because there will be always people selling them short at $2500-3000 per month in order to work in this industry in Geneva or Houston , (supports in Commodity trading). NO Sarcasm.

Apr 17, 2019

Recommendations on best places to learn about commodities trading not in school? Extremely interested but having a hard time finding info that I can understand. Maybe recommend some places to start?

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Apr 18, 2019
Apr 27, 2019

How do traders use the Baltic Dry Index for time charters? And which index is used for wet frieght, if any?

At the time of writing this post, Baltic Dry Index is trading at $889. I find it hard to believe that, even approximately, time charters for a day costs in the range of $889 for all those routes composited in the Baltic Dry Index. Shouldn't it be more than that?

Apr 29, 2019
amoghhlgr:

How do traders use the Baltic Dry Index for time charters?

BDI is a weighted avg of all routes under the different vessel sizes. They only use specific major routes. TC rates would be decided on a majority of factors (utilization of vessel, bunkering ports, export programs etc) and cross checked against what an they believe would be the avg daily hire rate for the year etc. Some may use specific trade routes on the baltic like the C5 (Iron Ore route from Australia to China) for a capesize COA and plus/minus the avg year differential to understand the current market numbers on the index vs the phys going rate.

amoghhlgr:

And which index is used for wet frieght, if any?

You'd be looking for the BDTI/BAIT.

amoghhlgr:

At the time of writing this post, Baltic Dry Index is trading at $889. I find it hard to believe that, even approximately, time charters for a day costs in the range of $889 for all those routes composited in the Baltic Dry Index. Shouldn't it be more than that?

It's only a weighted avg, unsure of the mechanism they use to calculate the index. But looking at published index on 29March 2019 shows: BCI @ 150, BPI @ 1102, BSI58 @ 813, and BHSI @ 464. BDI Index shows 689, if I avg it normally with those figures I get something along the lines of 632.25 which is in the bandwidth of +/-10% of 689.

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May 14, 2019
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May 19, 2019