Commodity Trading - The Satellite Advantage

An Essential Business

Anyone who drives a car will feel the effect of high crude oil prices; commodities are an essential part of everyday life.

Trading in commodities, such as crude oil, is one of the oldest businesses. However, new satellite technology is shaking up this centuries-old business and disrupting the traditional commodities paradigms.

Successful commodity trading relies upon intelligence, and satellite imagery can identify new information about a wide range of commodities traded on a global basis. This includes minerals, metals, fuels (oil and gas) and agricultural produce.

Trading Intelligence

Satellite data can assist traders and investors seeking to analyze the performance of industries — unlocking new intelligence to deliver a competitive advantage to those using it.

"Very high resolution data from Earth-i offers the potential to unlock powerful new insights and information solutions for big data analysts,” said Jonathan Sumner, business development director at Earth-i. “By applying advanced algorithms that analyze satellite data and correlate it with other big data sources, the pioneers of big data are developing a diverse range of satellite imagery-based solutions. And whilst big data is the buzz, the answers to business problems often lie in focusing in on selected areas of interest, or specific activities in key locations, that provide the insight and intelligence to solve particular problems."

Previously the limiting factor was the cost of obtaining regular satellite data which could be inserted into the trading process. The free availability of data from government-funded programs such as the EU’s Copernicus and the new generation of CubeSats has created a range of new commercial applications.

Demand is now growing for higher resolution data to unlock the predictive insights traders want. This requires high spatial resolution (i.e. ground sample distance greater than 1 meter) and high temporal resolution — the ability to revisit the same location every day or at multiple times of the day. New lower cost satellites are being built and launched in constellations to deliver this capability.

Competitive Advantage in Areas of Interest

Integrating satellite data with data from other sources can create powerful analysis and forecasting tools that can lower trading risks and generate higher returns for traders and investment managers.

In the maritime sector the Automatic Identification System (AIS) controlled by satellites maps the current position and identity of vessels. This can be correlated with datasets of ports, harbors and berths to track and verify position and activity. Further correlated with satellite imagery, the commodities loaded and unloaded at those facilities, such as coal, and can be tracked and measured, providing timely intelligence as to how much coal is delivered to specific importer markets of interest on a frequent basis.

Talos is integrating new space-based sensors with existing terrestrial technology in smallsat constellations, secure cloud based services, the Internet of Things (IOT), Machine-to-Machine (M2M) and sensorized shipping containers to enable real-time and non-real time (track and trace) monitoring, as well as efficiencies in the global shipping container supply chain.

"Significant cost savings are to be made by key stakeholders (Port Authorities, shipping liner companies, insurance brokers, commodity traders etc). The global commodity supply chain (coal, iron ore, bauxite etc.) is ripe for this application which will bring about corresponding increases in a country’s GDP where commodities are a high export percentage,” says Talos CEO Periklis Papadopoulos.

• Oil

The oil supply chain consists of: production units such as wells and drills; storage units including tanks; refining and processing units; and methods of transportation such as pipelines, trucks, railways, and vessels. Such infrastructure can be measured and monitored globally by satellite. Operators can gain near real-time information on the level of volume of oil being stored in tanks, for example, using shadow analysis of floating tank roofs or oil production levels by monitoring activity at refinery locations.

If a large refinery is closed for a period of time this can have a significant impact on the availability of fuels and short-term pricing. By monitoring this activity traders will have timely information to support trading decisions.

• Iron ore

Satellite data is a valuable tool to monitor mineral commodity supplies by tracking metal ore extraction, shipping and stockpiling to provide intelligence on metal supply volumes, choke points and improve commodity price forecasting.

The trade in iron ore is dominated by a small number of large producers such as Australia and Brazil and a small group of consumers including China and India. A relatively small number of strategic locations, such as mines, railheads and ports, can be monitored from satellites to produce an accurate and timely picture of the supply, stockpiling and consumption of iron ore.

Informing Decision Making

Real time commodity production, processing, storage, transfer, transport and consumption can now be analyzed to increase transparency and inform decision making of commodity traders and investors — reducing commercial risks and offering new opportunities for companies to get ahead of the game. VS