Supply base

We have access to information on Commodity allocations, mainly originated from Russia, which arises from different companies from time to time due to their inability to find the Buyer. These companies have the right from the Producer to sell the Commodity (as described above). Very often the contract is signed by the company which has a right to sell the allocation, but proof of Commodity comes from the supplier itself. In some cases the contract is signed directly between the Buyer and the supplier and all other companies participate in the agreement as agents.

How come we have the knowledge about opportunities to sell the Commodity?

The knowledge about Commodity allocations appearing on the market comes from personnel affiliated with the Supplier, who become aware of the unsold Commodity in possession of one of their trading partners or through connections with the trading companies themselves.

Why can’t we always get authority from the Seller to sell the Commodity?

There are number of reasons:

The risk of circumvention is large and very often the Seller doesn’t hold the Commodity (doesn’t have proof of Commodity to its name), but only has the right to sell it. It is sometimes problematic to have a letter issued authorising Alchemie Energy or the Seller to sell the Commodity, the Seller can only substantiate this right by disclosing copies of POP documentation from the supplier, which won’t be often done due to confidentiality reasons. The Seller normally discloses the copies of POP only to the Buyer via their bank and only after the Buyer has signed the supply contract and has confirmed its financial ability to pay for the Commodity as per the ICC standard procedures.

Sometimes an organization’s corporate policy prevents the inclusion of intermediaries in the buying or selling process as it can conflict with their policies on transparency.

The company with the Commodity allocation normally wants to sell the Commodity within the term the allocation is provided for and is reluctant to limit itself to one intermediary party for finding the Buyer. It also finds it unnecessarily time consuming to issue letters authorizing the sale of the Commodity to all its current intermediaries involved in searching for the Buyer. This is especially so with older Russian style “trade houses”.

The company with a Commodity allocation can be new to hydrocarbon commodity sales although very often affiliated with the supplier, in this case the letter with authority to supply the Commodity from the company with no history of supply will not be credible for the experienced Buyer.

Russian spot market deals can be very profitable with access to information on where the Commodity is.

Large producers and buyers often have long term agreements between themselves. This makes structuring a deal, involving an intermediary, between such parties unlikely. Such organizations have a complex corporate structure and multi layered management structure making communication and/ or trading of short term supply and demand requirements between their production and processing units inefficient. In such circumstances the proactive intermediary adds value by identifying and arranging to satisfy short term supply and demand. The difficulty for the intermediary is to ensure they are remunerated for their services and requires contracts being put in place between the intermediary and the buyers and sellers local companies.