GeoSpatial data-analytics: new trader tools to aid decision-making in the metals markets

by Peter Neumann, Senior Advisor Commodities at RS Metrics

Successfully navigating and positioning in global metals markets from the perspectives of adding or mitigating risk, requires the use of a variety of tools. Whether the trader or trading group is a consumer of metals, a producer, an investor, a sovereign, or a contract party to any of these, inventory tracking and monitoring are critical components to the risk and positioning assessments.

When it comes to exchange-traded markets such as the LME (London Metals Exchange) often one of the first sets of data points examined in developing a strategy, view, or trade is inventory levels. More specifically, when we talk about short-term and near-term positioning, it is the changes in observable inventories on any given day, week, month, etc., and the analysis of those inventory level trends that helps inform the decision-making process. These observations are not taken in isolation but are considered in combination with factors that professional traders and risk managers monitor, such as changes in contracts open interest, Commitment of Traders (COT) reports, traded volumes, currency impact, general trade, and economic data, along with technical price analysis.

New trader tools from the realm of geospatial data-analytics help take this analysis process one step further to ensure reliable data and help decision-making. MetalSignals™goes beyond reported exchange inventory levels and reports on asset-level global supply locations. These reports then are steps ahead of traditional data reports.

In addition to the ability to provide near real-time asset-level inventory data on over 400 locations, RS Metrics’ analytics is the basis for generating statistically reliable price direction signals of the underlying commodity. To show how helpful such a tool can be, I used MetalSignals™ to take a brief look at the 2020 period on LME copper.

Prices: Copper rose 23% from January 2020 through the end of December of 2020 — from $6275/mt to $7750/mt.

Inventory: RS Metrics inventory data over that period indicated a decline of 13.6%.

Price Signals: Generated on a monthly basis and over that period MetalSignals™ gave positive price signals for 9 out of 12 months.

Our latest signal which was generated in Dec-2020, indicates green.

The following review shows that advanced trader tools can be used to supplement decision making as reliable predictors of price fluctuations.

Peter has more than 34 years of institutional financial, commodity ,and global trading experience. He held senior positions in the OTC sales and trading groups at Phibro-Salomon Inc. and JP Morgan Chase, covering commodities and commodity linked structure sectors. Over Peter’s career he was responsible for risk management, portfolio allocations, trading and product integration across multiple asset classes and was an integral part of leading and achieving firm revenue, business development, and league table ranking goals. Peter retired from JP Morgan Chase as an Executive Director, head of Americas OTC metals sales. He has been President of MPN Advisory, a risk management consulting firm since 2012. He is a Founding Partner & CEO at Chrome Strategies Management LLC.