The Predictability Premium Part 2: Winning and Keeping the Commercial Mandate, with Christian Lins

Podcast Briefing: an Edited Q&A

The following Q&A has been adapted from the HC Commodities Podcast and edited for clarity and length.

Understanding Commodity Volatility

Paul Chapman: We’ve been talking about the predictability premium and the conditions under which companies can achieve it. But we’ve largely treated volatility as one thing. What different types of volatility do trading organisations need to consider?

Christian Lins: We’re talking about cash-flow volatility, and there are several components. Some can be anticipated, such as seasonal patterns in energy consumption. Then there is systematic volatility, where investors understand they are taking exposure to the commodity itself, including global macro factors and supply and demand.

There is also timing volatility. Physical revenues and derivative settlements do not always occur at the same point, which can create cash-flow volatility. Finally, there are operational or management surprises, such as asset incidents where there is no effective Plan B. Those are the cash-flow surprises investors particularly dislike.

Different commodity sectors are exposed to these factors in different ways. The extent to which companies can anticipate or minimise them helps determine whether the predictability premium materialises. 

Turning Disruption into Commercial Value

Paul Chapman: How do those different types of volatility translate into what a trading organisation actually does for the wider business?

Christian Lins: For a board member, it’s important to understand that capturing cash flow through trading means being able to turn disruption into cash. That requires an organisation capable of reacting quickly, putting physical logistics in place and having a finance function that understands what is possible and how much capital is available.

There is also an insurance role: replacing supply, rerouting around outages, protecting committed deliveries and securing trade routes.

Trading also creates an information advantage. It sits at the pulse of the market, seeing competitor flows, customer behaviour and changes in products or quality requirements. That information can feed back into the wider enterprise and influence future investment decisions.

When commercial, risk and finance teams work closely together, they can also better manage working capital, inventory, deliveries and hedging. 

When Supply-Chain Capability Matters Most

Paul Chapman: Is the predictability premium most relevant when companies are exposed to unexpected commodity disruption rather than simply benefiting from a structural commodity cycle?

Christian Lins: It comes down to the relative importance of managing the supply chain versus simply producing the commodity. In a fragmented market affected by sanctions, disruptions, war, weather or labour action, companies should be rewarded for having a diversified footprint and the ability to continue delivering despite adverse circumstances.

In more stable periods, that capability looks more like a marketing business. Investors expect it, rather than paying you for it. 

Why Trading Capabilities Need to Work Together

Paul Chapman: A sceptical board might ask why it needs to build the whole capability. Why not start with only parts of it and build gradually?

Christian Lins: Leadership teams need to understand that these capabilities cannot simply be picked individually. There can be different levels of emphasis, but the roles are connected and enable one another.

You cannot generate the same information advantage without having flows. You cannot provide insurance without participating in the market daily and being regarded as a reliable counterparty. You will not necessarily get the right prices if you are not actively buying and selling. It is a package. Front, middle and back office need to work together to drive that value consistently. 

Preparing for Different Commodity Market Scenarios

Paul Chapman: How should the board think about maintaining these capabilities when market conditions can change so dramatically?

Christian Lins: More mature conversations consider different scenarios and what capabilities will be required under each. If markets normalise and fragmentation declines, the shock premium may fade and trading may shift towards optimising existing flows and minimising value leakage.

If fragmentation persists, with recurring shocks, tariffs and disrupted market shares, the full organisational capability becomes more important. Trading can provide insurance, secure backup supply, protect commitments and diversify counterparties.

A third scenario is a supply overbuild or downcycle. There, inventory, cash management and the timing of physical and financial hedges become increasingly important. The emphasis changes depending on the market, but the capabilities still need to work together.

Making the Capital Allocation Case

Paul Chapman: Trading competes for capital with the rest of the organisation. How can commercial leaders make the case to a board that may be comparing it with major investments in physical assets?

Christian Lins: Trading is different from long-dated investments such as upstream projects or liquefaction plants. Those decisions can be highly irreversible, whereas trading can be built on an existing asset footprint and companies can choose how much duration and reversibility they want.

The discussion is about demonstrating that trading is a complementary use of capital that can extract additional value from the existing portfolio. On return on capital employed, it can also be more capital-efficient than long-dated commitments. 

The Changing Role of Finance Talent

Paul Chapman: What does a sophisticated finance function look like when it is genuinely advising the front office rather than simply reporting its results?

Christian Lins: Finance needs to understand how origination deals are structured, where hand-off points sit, who carries inventory and how the cash-flow profile of an individual deal fits within the broader portfolio.

That dialogue is still fairly new to many organisations. The finance team needs to understand both the cash-flow implications of what is happening in the front office and the wider portfolio. In that sense, you need more of a banking mindset in finance than an accounting mindset. 

Keeping Commercial Teams Aligned

Paul Chapman: If a trading team is rewarded on its own P&L, how do you stop it becoming detached from the strategic objectives of the wider asset-backed organisation?

Christian Lins: The mandate definition is critical. In an asset-backed environment, the objective is not simply to make money. It is to make money within defined limits and guardrails, while supporting the wider investor promise.

Setting that balance is a board challenge, particularly when the mandate is tested after a bad quarter. Portfolio composition also matters. The simpler and more homogeneous the portfolio, the easier it is to achieve a predictability premium. 

Keeping the Team Together Through the Cycle

Paul Chapman: During calmer markets, boards can question why they are paying significant compensation to trading teams that may not have hit their budgets. How should organisations think about keeping the team together through the cycle?

Christian Lins: Organisations need to understand the value of optionality. Physical trading businesses can be a net drain on cash during calmer periods, but when disruption occurs, they can pivot relatively quickly into significant contribution drivers. That is what management teams need to demonstrate to the board. 

Leadership, Trust and the Licence to Operate

Paul Chapman: The leader of a commercial build-out seems to be a particularly difficult role. How important are trust and communication when building and maintaining the organisation over several years?

Christian Lins: Successful transformation programmes require more than technology and processes. They need dedicated work around change management, education, executive communication and demonstrating progress to maintain trust.

Finance and investor relations need to be on board, and executives need to understand the difference between a transient effect, normal day-to-day volatility and a strategy that is permanently challenged.

That requires continued efforts to build fluency and trust, supported by credible internal sponsors. In asset-backed trading organisations, having trust from the top can sometimes be more important than having multi-decade trading and origination experience.

Consistency is also important because these transformations take multiple years. Maintaining top-down support, even as executives change, is critical to sustaining the programme.