How to capture maximum value from commodity operations

Whether it’s rare earths and tariffs, Ukraine and LNG, or COP30 and carbon, commodities have been a constant in recent news cycles. While even the best traders can’t perfectly predict where prices are heading, there are certain trends that stand out.

Commodity silos are breaking down. Today, power traders need to understand metals for battery economics, diesel traders must understand ags for biofuel pricing, and most commodities now have some link to carbon or green pricing mechanisms. Volatility has become systemic, with prices reacting to regulatory changes, geopolitical developments, and supply-demand shifts at ever-increasing speed. 

Against this backdrop, many commodity companies - both users and producers - are changing how they interface with the market. They recognise that, even if they don’t identify as commodity trading houses, they increasingly need to understand the techniques that firms like Trafigura or Glencore employ to generate value from commodity movements. At minimum, commodity companies must understand the techniques that trading businesses will deploy when dealing with them.

This realisation often marks the beginning of an evolution in commercial strategy. As they develop their approach to capturing value in commodities, companies typically progress through three distinct stages.

Unlocking value, stage by stage

The first stage centres on protecting base margin—the foundation upon which subsequent value creation depends. This might necessitate a tighter focus on core business. For a miner, it could mean managing costs in iron ore production. For a refiner, ensuring a value uplift from crude oil to product sales. For an airline, hedging jet costs to protect EBITDA. Alternatively, it could involve hedging techniques, working capital optimisation, or structuring to make clients more ‘sticky’. The specific approach may vary, but the principles underlying this stage remain constant—improving operational efficiency, reducing risk, and maintaining financial discipline.

The second stage is where the journey grows more complex. It involves recognising, valuing, and capturing optionality. Optionality can stem from physical assets—ships, storage, and refineries generate optionality through variations in geography, timing, and quality. It can arise from contracts, such as in LNG, where pricing and volume optionality often holds greater value than the base margin on sales. Finally, it can emerge from customer flexibility. For a business built on engineering skills rather than trading prowess, the idea of profiting from optionality may prove difficult. Here, a change in culture may be critical to unlocking this value.

The final stage involves leveraging the information gained from these activities to support proprietary position-taking. Where a company possesses advantaged information or superior analytics, these can improve the odds of positive outcomes. This stage also represents the only point at which risk materially increases through execution. While the first two stages focus on collecting value the company has already built or purchased, not every organisation needs to deploy Value at Risk (VaR) for proprietary position-taking. Companies should carefully consider whether this should be part of their journey.  

A company might be at different stages along this journey for different commodities, with value emerging from different places in each. For iron ore, a focus on base margin protection might prove most appropriate, while an LNG portfolio that fails to address flexibility and optionality is likely to be leaving value on the table. Each stage demands different support structures across trading, origination, financing, organisational design, business processes, delegations of authority, and systems architecture.

A clear understanding of where value resides today, and where it may emerge in the future, is vital for designing these support mechanisms effectively. 

Steering clients towards efficient value creation

At Baringa, we have developed a value journey methodology to support companies at each stage of their evolution. Practical examples of how we apply this approach include:

• Assessing how a metals company can use hedging to reduce earnings volatility or opportunistically lock in favourable margins, as well as using similar techniques to offer customised pricing to customers. We also advise on how industry peers approach this and help build the case to the board for stronger controls and governance frameworks
• Helping an LNG company evaluate its ability to deliver from US pricing hubs into either Asian (JKM) or European (TTF) markets, how to manage and capture the value of this flexibility, and how to strengthen resilience with robust commodity and trading risk management (CTRM) systems.
• For companies taking the final step into position-taking and betting on market movements, we identify where the company may hold informational or analytical advantages, assess where potential returns match the risk taken, and advise on how to set up organisational design and authorities to prevent value leakage between assets, marketing and sales divisions, and trading desks.

Our methodology enables firms to identify - at every level and across every product - where value can best be captured within their portfolio, which next steps to prioritise, and precisely what support mechanisms are needed to maximise returns from trading activities.

What distinguishes Baringa is our end-to-end commercial focus. We support clients across the entire value chain -from trading strategy through to CTRM systems and back-office processes. Rather than delivering isolated components, we shape integrated solutions where every element works in concert. This transforms trading from an opaque ‘black box’ into a transparent driver of genuine enterprise value.  

Would you like to unlock greater value from your commodity operations? Get in touch with our team to discover how we can support your journey.