Heightened Complexity: Managing Risk In Today's Commodity Markets

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Heightened Complexity: Managing Risk In Today's Commodity Markets

As recently as the summer of 2008, many market commentators

still believed we were still in a commodity bull market. Yet recent

months have seen turmoil in the wider financial markets,

significant falls in prices for most commodities and much market

comment around liquidity and credit pressures.

Against this background, Deloitte Switzerland conducted a survey

on risk management in today's commodity markets, reflecting

Switzerland's position as a major world energy and commodity

trading centre. Participants from all stages of the energy and

commodity value chain took part and were predominantly, but not

exclusively, Swiss-based.

The survey took place between 22 September and 24 October 2008.

This was a period of immense financial market turbulence including

the launch of the US and European bank rescue schemes and

significant government investment in various European banks.

The downward spiral of prices continued in this period, as

illustrated in the graphs below and overleaf. This price decline

coincided with, and was exacerbated by, slowing worldwide demand

(impacting on many commodities), an uncertain investment climate

and what several see as the end to the "commodity

super-cycle". Commentators are divided as to the likely

duration of these trends, or w...

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