Moving Energy Forward
Physical commodities traders such as Centalion are all about managing and mitigating risk. In fact, it’s a prerequisite for long-term success. Centalion has a more-than-two-decade track record of effectively managing risk within ever-changing commodities markets to ensure stable commercial growth.
A combination of policies and internal procedures addressing liquidityLiquidity in the context of energy commodities trading refers to the ease with which an asset or security can be bought or sold in the market without affecting its price.... More, credit, country, exchange rate, price, market, operational, environmental, freight, compliance and regulatory risks is the foundation of Centalion’s control and risk managementRisk Management in the context of energy commodities trading refers to the identification, assessment, and prioritization of uncertainties followed by coordinated and economical application of resources to minimize, monitor, and... More framework.
This involves various functions, including Risk, Controlling, Tax, Finance, Credit, Compliance, HSEC and the Internal Audit.
Within this framework, a range of risk managementRisk Management in the context of energy commodities trading refers to the identification, assessment, and prioritization of uncertainties followed by coordinated and economical application of resources to minimize, monitor, and... More tools and policies are applied to minimize overall risk exposure, including but not limited to:
The Group has built an effective risk and control management framework with the expertise to navigate market fluctuations.
Financial derivative instruments to hedge commodity price and foreign currency exchange rate risks
Offsetting physical positions, acting as a natural hedge
Insurance to hedge various operational risks including freight-related, country and political risks
Ready access to sufficient capital and funding to prevent liquidity risk
Strict policies and procedures to manage counterparty relationships, fraud and regulatory risks
The main tool to manage risk across the company entities is a proprietary information system that consolidates trade positions, financial exposures and the trade profit and loss results globally on a daily basis. It allows the management to monitor the Group’s overall exposure and adopt any required measures on a timely basis. This information system is constantly refined and improved by in-house IT developers to integrate new products being traded, as well as new functions related to logistics, invoicing, tax and/or reporting.
Strict policies and procedures are in place and are subject to constant reviews. They range from hedgingHedging Hedging is a risk management strategy employed to offset potential losses in investments by taking an opposite position in a related asset. In the context of energy commodities trading,... More and trading policies to operational and compliance ones. In addition to the risk tools, such policies and procedures are key elements to manage counterparty relationships, fraud and regulatory risks.
Risk Management Process
Centalion has global risk managementRisk Management in the context of energy commodities trading refers to the identification, assessment, and prioritization of uncertainties followed by coordinated and economical application of resources to minimize, monitor, and... More processes that identify risks that may impact profitability, including:
Commodity price
Interest rate
Credit
Capital
Liquidity
Operational
Currency
Centralized risk managementRisk Management in the context of energy commodities trading refers to the identification, assessment, and prioritization of uncertainties followed by coordinated and economical application of resources to minimize, monitor, and... More and finance teams are responsible to monitor and manage risk exposures within approved guidelines. Risk, credit, finance, tax, and compliance functions engage regularly to ensure all risks are correctly captured and vet new projects when deemed relevant. External consultants are engaged from time to time to provide additional expertise.
Managing Supply Chain Risk
Centalion reduces its supply chain**Supply Chain** A supply chain is a complex network that includes individuals, organizations, resources, activities, and technologies involved in the production and delivery of a product or service from the... More risk by working with a large number of suppliers from many geographical markets, using the company’s own infrastructure (vessels, terminals, storage locations), and building long-term relationships with reputable logistics organizations around the world.
Centalion further monitors its supply chain**Supply Chain** A supply chain is a complex network that includes individuals, organizations, resources, activities, and technologies involved in the production and delivery of a product or service from the... More and inventory using independent third-party organisations. Centalion has extensive insurance for its physical inventory, for marine cover, political risk, and payment risk. Centalion’s internal controls help to mitigate the risk of fraud across its supply chain**Supply Chain** A supply chain is a complex network that includes individuals, organizations, resources, activities, and technologies involved in the production and delivery of a product or service from the... More, as does the use of blockchain-backed payment systems.
Through diligent attention to all aspects of risk, Centalion is able to manage its supply chain**Supply Chain** A supply chain is a complex network that includes individuals, organizations, resources, activities, and technologies involved in the production and delivery of a product or service from the... More in the most efficient manner—serving its clients in the most effective and responsible manner.