The repercussions of higher interest rates on global economies and the commodities sector have been the most consequential story of Q1 ‘23. The last quarter also saw the outbreak of a banking crisis in the US with the takeover of Credit Suisse by UBS. As money supply tightens, the energy and natural resources world is even more focused on choices today and less in investments for tomorrow. This also translates into a talent story, as discussed in our Q1 2023 Market Review.
The rising cost of capital is causing liquidity to dry up in the physical oil markets, sparking concerns of an exodus from physical oil trading to the benefit of other commodities and asset classes. But this also comes after bumper profits recorded in 2022 by energy and commodity traders. Much of these profits are expected to be redeployed in growing segments like renewable fuels across the Americas, EMEA and APAC regions, signalling sustained talent demand.
Investment in Sustainable Aviation Fuel (SAF) is growing, across all regions. From HC Group’s office in Sao Paulo, we’re seeing increased efforts from Brazilian companies keen to playing catch up with the US and other European nations in the global race to become a leading SAF supplier.
China’s re-opening after the lifting of Covid restrictions is also propping up global oil demand, which is likely to generate a new hiring wave of Chinese talent.
Gas and LNG
Record gas and LNG prices in 2022 in the wake of Russia’s invasion into Ukraine largely contributed to outsized profits. This, in turn put pressure on compensation and retention schemes, with some employers choosing to defer their bonus pay-outs over longer periods. With LNG trading flows constantly shifting, HC Group saw continued hiring of LNG talent (traders, originators, analysts) by majors, national oil companies, traders and funds as part of constant efforts to optimize their trading portfolios. Some small businesses who were limited by rising costs of dealing are returning to trading platforms as gas prices have been less volatile.
Power and Environmental Products
While profitability is unlikely to be as high as this year, continued volatility partly due to the evolution of power markets means this segment remains attractive to capture untapped upside on Profits & Losses. While talent demand is up, supply remains scant after a decade of limited investment in graduates and junior talent. In the US, the growing involvement of international players the liberalized electricity markets is supporting search and hiring activity.
On carbon markets, talent demand remains focused on individuals with experience in project development and upstream origination. As companies look to position themselves for the medium to long-term growth on voluntary markets, talent demand from participants such as ADNOC in the Middle East is also building up. In Brazil, HC Group is seeing continued growth in carbon credits projects and has been supporting clients looking to position themselves in this segment. Dedicated talent is generally in good supply in Brazil, but the challenge for participants is to carefully identify the best profiles to match their own specific needs.
Activity at HC Group’s Sustainability practice has been driven by continued investment in ESG and sustainability initiatives as energy and commodity participants are keen to meet their corporate governance and regulations targets. However, talent is limited, and the needs vary from one part of the globe to another. In Europe, the focus for talent has been at the CEO-level and board appointment positions as sustainability in the region is considered more as a strategy for long-term growth. In the US, reducing scope 1 and 2 emissions are a high priority. In Asia, many participants still view sustainability as an add-on risk or a cost. This is gradually shifting, however, with more companies in metals and mining seeking loans and finance to meet ESG criteria and be able to grow their businesses.
Metals and Mining
HC Group’s Metals and Mining practice has been working closely with clients to support them in their talent requirements around the critical metals needed for the energy transition. Miners, traders, processors all face the challenges of sourcing alternative sustainable and secure supplies amid tensions between the US and Europe and China. The easing of Covid restriction in China and the re-opening of the country’s economy means sentiment over demand for metals and mineral products has improved since the start of 2023. Secondary product trading and recycling activity has been picking up with Tier 1 companies and producers trading more volumes than usual. Again, this is adding more talent demand against an already-limited talent supply in scrap metals.
Agriculture and Nutrition
As agricultural commodities continue to be affected by market volatility and geopolitical instability, HC Group’s Agriculture & Nutrition practice has seen the return of demand for proprietary agriculture trading hires and not just from traditional players. Strong returns for many agricultural traders have encouraged energy trading houses and hedge funds to hire proprietary agricultural traders to expand and diversify their commodity platforms with new revenue streams – a trend last seen at the turn of the previous decade.
In Brazil, rising costs of grains for animal nutrition combined with other external risks such as the dollar fluctuation have increased the need for rigorous cost and quality control across the value chain. As a result, there is increased demand for specialized talent such as marketing experts, technical sales managers, sales directors in this segment.
Demand for middle and back-office functions remains driven by the need for participants to build inner resilience to face the systemic volatility sparked by increased macro-economic, geopolitical, regulatory and supply chain risks. Many are also expanding aggressively to capture new opportunities, by growing their portfolios or increasing their exposure to adjacent commodities. As a result, they must strengthen their business-critical functions (primarily risk experts, technical accountants, financial controllers, compliance experts, etc) to support the growth of front-office teams and performance.
The growing recognition by governments of the critical role commodity supply chains play in energy and food security is also driving the need for a different suite of profiles who can engage and advocate in companies’ behalf such as regulatory, governmental and communication specialists.
Commodity Technology and Innovation
Hedge funds continue to make deeper forays into commodities trading, following record performance reported in 2022. This is heating up the competition for top-level tech talent. Hedge funds and private banks pioneered the use of state-of-the-art technologies by commodity traders to boost trading margins, be it to leverage Big Data through advanced analytics or to continuously upgrade Execution Trading Platforms (ETPs).
Read the full issue of HC Group’s Q1 2023 Market Review