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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 whether they will be reversed by inflationary policy responses.

The results of the survey are set out on the following pages, together with commentary on the key findings.

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