Risk and Sustainability: The Challenges Facing Metals Traders in 2021 and Beyond

It’s difficult to think of a commodity more ubiquitous than metal. From mining and trading through to production and manufacturing, it touches almost every sector imaginable. The location and extraction of metals around the world such as copper, aluminium, steel and zinc provide the foundation on which construction industries operate. Not to mention the essential role metals play in the manufacture of key technologies that facilitate our everyday lives. One thing is for certain: metal has always been in high demand, and likely always will be.

But how businesses that trade metal run their operation is something that’s likely to come under increased scrutiny in the months and years to come. Any organisation that has a stake in metal as a resource will face a unique two-pronged challenge as we move into 2021. Put simply, they will have to balance economic risk with long-term sustainability.

A decade of change?

With climate change, sustainability and the concept of a circular economy so high in the public conscience, there’s been a seismic shift in the way companies operate. One revelation is that in order for a business to have a positive impact on the pursuit of sustainability, it doesn’t necessarily have to forgo profit. In fact, there are countless businesses around the world that operate in what many would regard as non-green industries, such as oil and non-renewable energy, who are making great strides toward limiting their carbon footprint while still providing a vital service, often on a global scale.

The UN refers to the next ten years as a ‘decade of change’ in which all businesses, regardless of sector or industry, come together in order to move the needle on climate change and sustainability. The UN Global Compact was set up with this in mind, and has already welcomed more than 12,000 businesses into the fold from a variety of backgrounds to share and collaborate in building a more sustainable future.

One thing gleaned from initiatives like the UN Global Compact is that sustainability is bigger than any one resource or any single organisation. It’s about the data-driven transformation of things like supply chains, logistics and distribution. If a business can tighten up these areas in the interests of profit, it can do the same in the interests of sustainability. There’s very little reason that profit and sustainability should remain mutually exclusive in 2021.

The greening of metals

Anybody would be forgiven for thinking that metals fall into the same non-green category as the oil or gas industry. But as we’ve already pointed out, carbon neutrality isn’t a zero-sum game and even the most unlikely of businesses can have a material impact on the journey toward sustainability. In 2020, the London Metal Exchange announced that it would be launching a separate spot exchange for trading low-carbon metal. This marks the first time the exchange has ever traded metal based on its environmental footprint in its 140-year history.

Mining companies around the world are already taking great strides to limit their impact on the environment in order to retain businesses and preserve their reputation. In fact, the ‘green mining’ market is predicted to grow from $9 billion USD in 2019 to almost $13 billion in 2024, in part driven by mounting public pressure and new government regulations. The ‘greening of metals’ is likely to continue in the coming years, giving metals traders a unique opportunity to contribute to the fight against climate change. But in order to do so, they’re going to need to meticulously balance risk and profit with sustainability, and that’s where data comes into play.

A volatile market

Metals traders are no stranger to a volatile market place. That volatility, recently driven by macroeconomic flux, Brexit and climate change, has only been exacerbated by the COVID-19 pandemic. According to the National Association of Manufacturers (NAM), more than 80% of metals manufacturers expect the pandemic to have a profound financial impact on their business. It wouldn’t be unreasonable for metals traders to prioritise short-term financial stability and revenue over sustainability, but with the right technology in place it’s a choice they won’t have to make.

Profit and principle can co-exist in 2021 thanks to data, insight and technology. By accelerating digital change and arming themselves with trading tools that can provide real-time analysis and aid minute-by-minute decision making, metals traders can safely balance profits with environmental impact. A fully integrated trading platform could factor in supply lines, traceability, provenance and logistics on each and every potential deal, giving traders a 360-degree real-time insight into the environmental footprint of the trades they’re considering.

The greening of metals has long since begun. It’s time for traders to join the decade of change and propel themselves forward with actionable, data-driven intelligence. This year might bring a two-pronged challenge, but where there’s a challenge there’s always opportunity.

Written by

Tasja Botha, Managing Director, Commodities Portfolio at Brady Technologies

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Risk and Sustainability: The Challenges Facing Metals Traders in 2021 and Beyond