Commodity Trading Strategy · 2020. 7. 29. · seasonality within some commodity markets, it could...
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Contact Tim McLaughlin Executive Director, Industry Solutions & Trade Products [email protected] Telephone +1-516-319-5112 Mabel Ng Director, Trade Products [email protected] Telephone +852 3726 7078 Authors Jeremy Domballe Sr Regional Operations/ SME Specialist Mabel Ng Director, Trade Products GTA Research July 2020 Commodity Trading Strategy: Utilizing Trade Data to Access Volatility and Forecast Trends The use of bilateral trade data within a commodity trading strategy has frequently come up in traders’ discussion, with some starts making use of this data point within their analytical systems. In a recent research paper, the Maritime & Trade business division have leveraged Bilateral Trade data ( Global Trade Atlas - GTA ) to examine its relationship with commodity trading through a study to India, China and the United States – with each focusing on selected commodities to analyse statistical relationships against spot prices, and discuss potential applications within forecasting to provide short-term indications. In brief: • The Harmonised system codes used to report statistical trade data by National Statistical Authorities is successfully mapped against more traditional named ‘Commodities’. • The statistical trade data concept analysis revealed that Unit Price (Unit Price = Value ÷ Quantity) concepts are highly correlated to spot prices (such as soybeans having a 0.95R2). • Due to the extended history of the GTA data as well as visible seasonality within some commodity markets, it could be used in statistical modelling to forecast commodity market direction (ETS Forecast revealed 0.24% mean variance from actual for sorghum). • Data revision analysis over a 12-month period showed that the percentage change, in contrast to what changes is very small, with little evolution on period-to-period, leading to a 99% confidence to the data as a whole. 12 months after publication Value revision percentage changes by direction averages at 0.35% with quantity averaging at 0.67%. Disclaimer Neither IHS Markit, its Affiliates or any third party data provider makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. Neither IHS Markit, its Affiliates nor any data provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the IHS Markit data, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom. IHS Markit has no obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate. Without limiting the foregoing, IHS Markit, its Affiliates, or any third party data provider shall have no liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein. Copyright © 2020, IHS Markit® No Advice. The data intended only for professionals in the financial markets and are not, and should not be construed as financial, investment, legal, tax or other advice of any kind, nor should they be regarded as an offer, recommendation, or as a solicitation of an offer to buy, sell or otherwise deal in any investment or securities. Recipient may not use the data to transmit, undertake or encourage any unauthorized investment advice or financial promotions, or to generate any advice, recommendations, guidance, publications or alerts made available to its clients or other third parties. Nothing in the data constitutes a solicitation by IHS Markit of the purchase or sale of loans, securities or any investment.
Transcript of Commodity Trading Strategy · 2020. 7. 29. · seasonality within some commodity markets, it could...
ContactTim McLaughlin Executive Director, Industry Solutions & Trade [email protected] +1-516-319-5112
Mabel Ng Director, Trade [email protected] +852 3726 7078
AuthorsJeremy Domballe Sr Regional Operations/ SME Specialist
Mabel NgDirector, Trade Products
GTA Research July 2020
Commodity Trading Strategy:Utilizing Trade Data to Access Volatility and Forecast Trends
The use of bilateral trade data within a commodity trading strategy has frequently come up in traders’ discussion, with some starts making use of this data point within their analytical systems.
In a recent research paper, the Maritime & Trade business division have leveraged Bilateral Trade data ( Global Trade Atlas - GTA ) to examine its relationship with commodity trading through a study to India, China and the United States – with each focusing on selected commodities to analyse statistical relationships against spot prices, and discuss potential applications within forecasting to provide short-term indications. In brief:
• The Harmonised system codes used to report statistical trade data byNational Statistical Authorities is successfully mapped against moretraditional named ‘Commodities’.
• The statistical trade data concept analysis revealed that Unit Price(Unit Price = Value ÷ Quantity) concepts are highly correlated to spotprices (such as soybeans having a 0.95R2).
• Due to the extended history of the GTA data as well as visibleseasonality within some commodity markets, it could be used instatistical modelling to forecast commodity market direction (ETSForecast revealed 0.24% mean variance from actual for sorghum).
• Data revision analysis over a 12-month period showed that thepercentage change, in contrast to what changes is very small, with littleevolution on period-to-period, leading to a 99% confidence to the data asa whole. 12 months after publication Value revision percentage changesby direction averages at 0.35% with quantity averaging at 0.67%.
DisclaimerNeither IHS Markit, its Affiliates or any third party data provider makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. Neither IHS Markit, its Affiliates nor any data provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the IHS Markit data, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.
IHS Markit has no obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, IHS Markit, its Affiliates, or any third party data provider shall have no liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions,
recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.
Copyright © 2020, IHS Markit®
No Advice. The data intended only for professionals in the financial markets and are not, and should not be construed as financial, investment, legal, tax or other advice of any kind, nor should they be regarded as an offer, recommendation, or as a solicitation of an offer to buy, sell or otherwise deal in any investment or securities. Recipient may not use the data to transmit, undertake or encourage any unauthorized investment advice or financial promotions, or to generate any advice, recommendations, guidance, publications or alerts made available to its clients or other third parties. Nothing in the data constitutes a solicitation by IHS Markit of the purchase or sale of loans, securities or any investment.
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IHS Markit | Commodity Trading Strategy
Correlation Coefficient – Spot Prices: Case Study of China PVC Trade
Mapped against Financial Markets - Unit Price in GTA is a highly correlated concept to spot prices and depending on the reliance of imports/exports of a country, import or export could be more highly correlated.
Below charts shows a comparison of China PVC trade – unit price in GTA vs its spot price has a high degree of accuracy.
Exponential Smoothing Forecast – Case Study of US Soybean Market
We conducted over a historical period as a form of back testing, as to assess the accuracy of the forecasted GTA figures to the Actual GTA figures.
The below forecast estimated a decrease in unit price between July and September of 2019 in GTA Unit Price, which is reflected in the actual data, as well as the spot price, demonstrating how the GTA historical data could potentially be used to provide insights into the short-term evolution of markets.
Further analysis could be conducted to understand how quantity and value variance by Partner Country affects unit price, or how unit price fluctuates depending on number of trade partners as to develop scenarios and understand the potential impacts to the market.
For more in-depth analysis, access the full research paper here: Global Trade Atlas (GTA) Research Paper - Case Study of Commodity Trading for Financials
Source: IHS Markit. © 2020 IHS Markit
Correlation of China PVC Trade
y = 0.8918x + 203.44R² = 0.7189
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China Polyvinyl Chloride (PVC) (Acetylene Based) Spot, Average - Delivered China, South [US$/T (converted)]
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GTA China Export PVC Unit Price - US$/T
China PVC (Acetylene Based) Spot, Average - Delivered China, South [US$ per Metric Ton (converted)]
Source: IHS Markit. © 2020 IHS Markit
US Soybean Market. Forecast Unit Price Vs Spot Price
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FM. Average of US. North Central and South Central Illinois Soybeans Average, Spot Price (SBNSIL.D7) - US$/BushelGTA US Soybean Export Unit Price (US$/T) - ActualGTA US Soybean Export Unit Price (US$/T) - Forecast
Source: IHS Markit. © 2020 IHS Markit
US Soybean Market. Actual Unit Price, Vs Forecast Unit Price Vs Spot Price
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FM. Average of US. North Central and South Central Illinois Soybeans Average, Spot Price (SBNSIL.D7) - US$/Bushel
GTA US Soybean Export Unit Price (US$/T) - Actual
GTA US Soybean Export Unit Price (US$/T) - Forecast
Source: IHS Markit. © 2020 IHS Markit
