Category: Insights

Q1 ‘22 Market Review: Unprecedented Risks, Emerging Opportunities & Talent

Russia’s invasion of Ukraine is pushing the global energy and commodity sector deeper into a territory riddled with new geopolitical, political and financial threats, adding to market risks that have been unfolding since the emergence of the super-cycle in 2021. It isn’t just worsening already-stretched energy, metals and food supply chains. Skyrocketing commodity prices and volatility rates have shaken markets, exposed systemic flaws and are challenging trading businesses notably due to higher margin requirements and costs of trading, as discussed in HC Insider’s latest Podcast here. The spill-over effects on global trade flows and economies will likely be significant and lead to further fragmentation of the global economic and political order – another recent HC Insider dives into this subject here. With energy security now taking centre stage, the energy transition is promising to be more turbulent than expected, especially with regards to supplying key metals. As examined in HC Group’s Q1 ’22 Market Review, these forces will continue to shape the talent strategies of commodity participants to navigate unprecedented risks and capture new opportunities.

In our Editorial Comment entitled “Will Everyone Trade Carbon?”, we explore the potential opportunities offered by a growing number of private companies taking initiatives to develop new technologies and products to tackle carbon emissions outside of compliance markets. Many are also building portfolios of offsets in anticipation of rising prices and customer demand for such offset credits. 

This is broadening the definition of carbon trading and of sustainability products. Importantly, this is paving the way for a new suite of talent needs. But a lot hinges on future regulation to provide financial incentives and funding. The outcome of COP26 in Glasgow showed just how critical regulation and political determination will remain to keep the momentum behind climate action, especially considering events in Ukraine and the threat of a global economic recession.

Meanwhile, the significant strain exerted on the oil supply chain because of sanctions against Russia and other drivers is likely to exacerbate an already-robust competition for specialized skillsets. Supply chain disruptions had already caused record-breaking volatility in oil, gas and power prices in 2020 and 2021. As observed by HC Group’s Liquid Fuels practice, this had partly resulted in increased hiring from existing and new trading participants to strengthen their risk management, derivatives trading and analytics capabilities. 

Similarly, LNG talent was already in high demand in the EMEA region before Russia’s invasion of Ukraine. Major LNG producers in the Middle East have continued to invest heavily in new trading teams to optimize their supply portfolios. But on the demand side, decisions to invest in new import infrastructure in Europe to cut reliance on Russian pipeline gas is also calling on fresh procurement strategies, especially through newly proposed infrastructure such as new import terminals in Germany and other European countries. HC Group is already witnessing the repercussions on the talent front.

In the metal and mining sector, higher metals prices, tight supplies and soaring demand driven by the energy transition are making the economics of metal recycling increasingly attractive. However, as the circular business model in this segment is still consolidating, the talent pool remains extremely limited and is yet to catch up with the needs of the market.

In the agriculture sector, the renewable fuels segment continues to attract interest in the context of the climate-driven energy transition. Oil and gas companies are investing more capital in this sector to develop greener products and reduce their carbon footprint. Against an already scarce talent pool, this is taking talent competition with agri players to unprecedented levels.

From its office in Sao Paulo, HC Group’s Latin America practice is anticipating new talent needs from trading units as a result of Russia’s invasion of Ukraine, notably regarding shortages of key products like fertilizers. Elsewhere, talent requirements in Chile’s energy sector have been primarily driven by long-standing challenges in finding a balance between achieving net-zero commitments and keeping costs down. But the record-breaking prices for imported oil and gas are undeniably intensifying such challenges.

Amid unprecedented changes disrupting energy and commodity markets, companies are increasingly adapting and upgrading the way they do business and trade. Beyond specialized sector-specific talent needs, corporate functions are undergoing a rapid transformation to respond to volatility, new risks and opportunities. For instance, as explored in HC Group Q1 ’22 Market Review, employers’ requirements for risk experts across commodities have been shifting to individuals with quantitative analytical background. Such expectations mark a departure from more traditional market risk manager profiles.

Finally, digitalization and data optimization remain central to the transformation and performance of trading businesses across commodities. Tech talent demand is becoming increasingly driven by the growing use of advanced automation tools such as machine learnings and artificial intelligence to strengthen and sophisticate companies’ analytical capabilities and trading strategies. Importantly, as energy and commodity markets become more complex, companies are also combining technical skills with trading experience and market knowledge. –FS

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