The Hidden Plumbing of Commodity Finance
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What are the foundational concepts of commodity finance?
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Bloomberg Audio Studios. Podcasts. Radio. News.
Hello and welcome to another episode of the All Thoughts Podcast. I'm Tracy Alloway.
And I'm Joe Weisenthal.
Joe, I think I've told you this before, but way back when I was starting in financial journalism, I really wanted to be a commodities reporter.
I get it. It seems fun. It seems real. It seems like one of the few areas of finance that's like not just a screen. You know what I'm saying?
Yeah. No, there's a physicality to it, right?
Yeah. Yeah. But also, like, you know, everyone's like, this is a relationship business. But I feel like commodities, you know, everyone in finance has that, right?
Do your banker impression again.
This is a relationship. But right. But everyone says that in finance. This is a relationship business. But actually, commodities seems to be one of those areas where actually that's a real thing and not just a cliche and stuff. So I get it.
It seems to be very idiosyncratic where like one load of whatever commodity might not be completely fungible with the same commodity. Yeah.
Because we call it commodities. Right.
And yet, maybe they're not. But, you know, so I had this like romantic idea in my head of what a commodities reporter actually does, which is like, I don't know, go on ships and travel alongside like huge things of coal and metal and aluminum and stuff like that, which is probably not realistic.
Yeah.
One aspect of commodities that I never really appreciated was how much financialization there actually is in the market and that there are so many different players in the market. We've sort of touched on it before with the Strait of Hormuz situation where... You know, you have the insurers and then you have the reinsurers and you have like insurers for the freight and for the whole and for like liability. And it just seems so complicated. You have a very similar situation on the financing side. Sure. And it struck me that we have never actually done a commodity financing episode.
No, and I'm really interested in this because, again, like one of these things, you always hear about capital efficiency, right? This is very important.
How do commodity financiers manage price risk?
And so, okay, here's like – let's say we do not know – I don't know what the cost of moving so and so many kilograms of copper from one place to another is. Whatever that cost is – I probably don't want to tie up all of my capital at that. I probably want to put down a fraction of the thing, borrow the rest, et cetera, then pay off that loan when the ship gets there, et cetera, so that I'm as liquid as possible at any given moment. This is just like, I'm sort of like, this is my first principles. I don't know anything about this space, but I assume that there are a lot of calculations like this within the process of procuring, mining, delivering commodities.
Absolutely. So today we are going to learn about commodity finance. We're also going to try to get a handle on what's going on in the commodities world right now, given some of the disruptions that we've seen. And I'm glad to say we do, in fact, have the perfect guest. We're going to be speaking with Lewis Hart. He is, of course, the head of corporate advisory and banking at Brown Brothers Harriman. So someone who lives and breathes commodity finance.
Thanks, Tracy. Thanks, Joe. It's great to be here.
Would you say you know more about commodity finance or 90s hip hop and R&B?
Oh, that's a tough one.
Very close. Very close. I'm throwing that out of nowhere. He's a big hip hop guy.
Tracy knows me well.
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Chapters
8 chapters
1
What are the foundational concepts of commodity finance?
0:00–2:51
2
How do commodity financiers manage price risk?
2:51–5:50
3
What role do warehouses play in commodity finance?
5:50–9:11
4
How does financing differ between hedgable and non-hedgable commodities?
9:11–12:14
5
What happens when a shipment is delayed, like in the Strait of Hormuz?
12:14–15:12
6
How do banks assess collateral in commodity finance?
15:12–19:00
7
What trends are emerging in the commodity finance market?
19:00–22:41
8
How might the future of commodity finance evolve?
22:41–47:04
Speakers
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