April 16, 2019
FT Commodities Global Summit 2019: Five Forces Leaders Will Need to Navigate
We were proud to once again be a sponsor of the FT Commodities Global Summit and take part in this year’s discussions about the main challenges and opportunities facing leaders in the sector. From our candid conversations with them and others at the event, we identified a few key themes — some that have been ongoing and some that have recently emerged — that should be on commodities leaders’ radar over the next year.
1. The spectre of sanctions
Geopolitics has always been a factor in the commodity trading sector, but this year it was especially prominent. Last year, we pondered the possibility of a full-scale trade war and this year, leaders at the summit overwhelmingly cited the US/China trade war as the most dire political issue facing the sector. The activities of the US took centre stage in the geopolitics panel with one panellist describing the country’s energy policy as “an explicit tool of US foreign policy”. Over the coming year, commodities leaders who wish to have a stake in the US export market and reap the benefits of the shale revolution will have to “prove” themselves and their companies to comply with “the long arm of the American law” as one CEO described it. In this VUCA world, in which tweets can impact oil prices and sanctions are issued freely, commodities businesses and their leaders will need to be simultaneously flexible and disciplined.
2. Changing business models
“Increasingly, size does matter,” declared one CEO. In a time of considerable political and market uncertainty, many executives touted the importance of flexibility and adaptability in the pursuit of multiple revenue streams to survive in today’s climate. The future of small, regional, niche players from agriculture to mining is relatively limited. In the future, we’ll see that the successful companies are those that maintain a bigger footprint and have a more disciplined approach to the market.
Additionally, organizations that are fully integrated and have a truly global platform can adapt much quicker to changes in market positions, decreasing margins and other unexpected threats. We’re seeing organizations shift toward more learning-oriented corporate cultures in response to ongoing disruption. As one senior executive noted, different customers are looking for different products, and companies with a comprehensive portfolio are better positioned to offer the level of choice that has become expected, as well as follow trends wherever they may lead. Throughout the summit, leaders hinted at the prospect of further consolidation, although the present uncertainty is causing them to be highly selective about non-organic growth. One CEO observed that coverage of the full value chain of old to new minerals puts a mining company in a better position to deliver positive impact based on communities’ needs.
3. Growing demand for sustainability
As in 2018, sustainability was a recurrent theme at this year’s summit. Many leaders reasserted their organizations’ contributions to the low carbon push and the dialogue had clearly moved beyond compliance to business as usual. Sustainability in the mining sector was a particular focus given the recent Brazil dam collapse. Technology is enabling significant advances in energy efficiency and health and safety risk reduction, but the Brazil disaster, as with Mariana in 2015, has put the industry back under the lens. The practice of wet tailing, associated with both failures, has proved to be extremely hazardous and the industry needs to collaborate to find alternatives.
To the question, “Can mining really go green?” Jakob Stausholm, CFO of Rio Tinto responded, “Yes, I am absolutely convinced about that, no question.” The evolving mineral mix in support of a low carbon future presents a new opportunity for growth in the sector. In the last year, Rio successfully divested all coal assets, its aluminium business in Canada is run entirely on hydropower and the company now markets itself as a “big pure minerals and metals business.” En+ Group is aiming to create a market for green aluminium, a new asset class in support of a low carbon future. The mining sector is arguably better positioned than oil and gas to benefit from the natural resources transition, but thus far, has failed to assert itself and the critical role it will play. Another CEO remarked: “Mining is absolutely critical to supporting society in its broadest sense and to creating a green world. But it is how we deliver that message.” There is growing demand from consumers and investors for specific minerals necessary for a low carbon future, which presents an exciting opportunity for the industry, but leaders must learn to market it. (Here are some tips for how leaders can lead the sustainability journey.)
4. An increased emphasis on transparency and governance
The role of disclosure and transparency in promoting good governance and ethical business practices was a key theme. Ueli Maurer, president of the Swiss Federation, highlighted the growing regulatory pressure for transparency and reporting as a key global shift. We’re seeing more governments, competitors and organizations from adjacent industries are working together to improve transparency and reporting standards, enabled by technologies like blockchain and AI. But largely, transparency is a culture issue. How is information shared across the organization? Do the board and CEO lead by example? Are people rewarded for doing the right thing even if it takes longer and costs more? Jeremy Weir, CEO of Trafigura, shared that the organization is working to ensure all employees understand the importance of compliance and strong governance. Similarly, En+ Group completed a dramatic restructuring post-US sanctions and now have unprecedented transparency and reporting across the company.
5. Continued calls for diversity and inclusion
The commodities sector still has a long way to go with regards to diversity and inclusion at the senior executive level; at the summit this year, only 18 percent of those on the stage were women. Common points around flexible working and diversity targets were raised, but there was also mention of the need for a broader, industry-wide transformation that will attract not only different genders, ethnicities or age groups, but also different ways of thinking. Historically, the commodities sector has relied on word of mouth or pure chance to attract talent, but it is becoming clear that this approach is no longer sustainable, especially to recruit highly sought-after data scientists and technologists. The sector needs to do a better job of marketing itself to educate and attract a broader talent pool. However, recruiting more diverse talent is only half the battle. Commodities organizations must also focus on inclusivity to ensure these hires succeed.