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April 25, 2014

Commodity Trading White Paper | Craig Pirrong

The trading of the basic commodities that are transformed into the foods we eat, the energy that fuels our transportation and heats and lights our homes, and the metals present in the objects we use in our daily lives is one of the oldest forms of economic activity. Yet commodity trading is widely misunderstood, and as a consequence, it is often the subject of controversy.

As I follow Craig's blog and met him in London, I wanted to bring your attention to his white paper on commodity trading firms, and have replicated the introduction below, plus attached the paper as a PDF. The original blog post from Craig is here, and the source of the PDF on the Trafigura site here.  Leave your comments over on Craig's site so he can respond (at the first URL).

 

The Trafigura introduction follows:

The trading of the basic commodities that are transformed into the foods we eat, the energy that fuels our transportation and heats and lights our homes, and the metals present in the objects we use in our daily lives is one of the oldest forms of economic activity. Yet commodity trading is widely misunderstood, and as a consequence, it is often the subject of controversy.

 

This white paper, written by Professor Craig Pirrong of the University of Houston, was commissioned by Trafigura as part of our efforts to explain the business more effectively to stakeholders and to demystify the commodities trading sector. It uses a combination of description and analysis to present the economic role of the industry, how it manages risk and financing, how it is governed and the factors driving commodity trading firms' investment strategies.

 

It concludes that commodity trading firms transform commodities in space, time and form in order to enhance their value. They move commodities from low-value uses to high-value ones. In so doing, they enhance the wealth and welfare of both producers and consumers.

 

Craig Pirrong is a professor of finance and the Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business at the University of Houston. His research focuses on the economics of commodity markets. He has published over thirty articles in professional publications and is the author of four books. He has also consulted widely for clients including electric utilities, commodity traders, processors and consumers and commodity exchanges.


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