A career in commodities

Read time: 5 minutes Added date: 29/08/2024

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How would you describe your current role?

I work in the Commodities Derivatives Sales team where we offer products such as swaps and options to help clients manage their commodity exposure across Energy, Metal and Agricultural markets.

It’s an interesting, fast-paced role covering lots of different products such as crude oil, refined oil products, natural gas, electricity, carbon emissions, metals, softs and grains. We work with large global corporate clients and small and medium sized companies across a wide range of sectors such as manufacturing, transport, energy producers, industrials, utilities, and retailers.

How do you support clients?

Our tailored risk management solutions help clients to protect themselves against price risks that may impact their profitability and supports the supply chain and end customer. For example, we offer cash-settled swaps based on underlying energy, metal or agricultural exposures that offer flexibility and liquidity in managing price volatility. These hedges can be put on independently of the physical procurement process and can go beyond the maturity of supply contracts to maintain price protection on uncontracted tenors.

Could you explain a bit more about the typical product you offer?

A typical product we offer is a swap which is a transaction that occurs directly between two parties without the use of a formal exchange. In the context of commodities, it’s a financial hedge that overlays the physical contract and involves customised agreements tailored to the specific needs of the parties involved.

For instance, a company can hedge their fuel price risk by buying a diesel swap. This is an agreement whereby a floating (or market) price is exchanged for a fixed price, over a specified quantity and period of time. The term ‘swap’ is used to describe the trade as the buyers and sellers of a swap are ‘swapping’ cash flows. This has the effect of fixing the wholesale diesel price component of future diesel purchases.

“Lloyds Bank is the only UK clearer to offer commodity hedging. We work very closely with our colleagues in the FX and rates team. By using the same credit line and ISDA documentation we are able to have the benefit of offsetting trades and reduced credit and capital requirements compared to a stand-alone commodity bank. This means we are often able to pass this benefit to our clients in the form of sharper pricing.”

Peggy Olde Bijvank, Commodity Derivatives Sales

How would you describe the market over the past few years, and what trends do you see?

The significant price increases we saw during the energy crisis made many customers explore how financial energy hedges can complement their existing procurement strategy. Suddenly, price exposures that were considered immaterial were no longer irrelevant with European and UK gas and electricity prices in particular, soaring to historical highs. Many clients have put their first financial energy hedge in place over the last few years to help manage their exposure which certainly kept us busy!

We have also seen customers more serious about their commodity exposure in general, be that across energy, metals and or agricultural products and hire a risk management specialist to work with their procurement and treasury teams to properly identify all the exposures and volumes and set up a proper hedging programme.

Another trend we see is of course in the energy transition space. We continue to help our clients in this space by adding new products to our offering such as biodiesel indices. We are also becoming more active in carbon emissions hedging especially as new sectors such as the maritime sector (and more sectors to follow) are being captured under the UK and EU’s Emission Trading scheme.

Tell us a bit more about your career in commodities

I started my career more than 20 years ago as a commodity merchant for Cargill and enjoyed the tangible nature of the products. It was a great feeling to trade in physical commodities in the port of Amsterdam. I used to watch the vessels arriving in the harbour, then departing with products sold by our team.

I then moved to London as I was keen to apply my knowledge of physical commodities into a financial market role. I joined a French bank as a futures broker, where I built up the grains desk. During my time there I had the opportunity to learn about the soft (coffee/cocoa/sugar/ cotton) products as well. I was also involved in warrant financing whereby I financed coffee stored in warehouses for a European trade house. Before joining Lloyds Bank I briefly worked at Macquarie Bank on their Structured Commodity Finance team.

What do you enjoy about working in commodities?

The commodity world is a fast-paced industry, impacted by global events and trends. You need to have an interest in international markets and enjoy a career path that is ever-changing and in which no two days are ever the same. The best days are when we speak to a client about commodity products that are new to them, and we can help them design a risk management strategy that helps them to pro-actively manage their exposures to these volatile markets.

I love that commodities are tangible and entail so many different products with their own distinctive features, so when you move jobs and cover a different product you learn about a whole new sector. I also enjoy that you deal with many different clients and in one of my previous roles, as a futures broker, I had clients from all over the world from Brazil to Vietnam and from Singapore to Europe. It makes you feel very connected to the world economy.

What’s something people would be surprised to learn about you?

I used to be a certified physical coffee grader for the ICE commodity exchange where I was hired to grade coffee in their old grading room in Whitechapel. I would grade coffee very early in the morning, during my lunch break or after work. It was a lot of fun as I dealt with a tangible product which I would normally trade as a derivative/futures product.