Assay Management Best Practices for Concentrates Trading
May 08, 2017
If you’re involved in concentrates trading, you’re well aware that assay management is a critical but often challenging part of the trading lifecycle. You have to deal with payable metal content that not only differs for each element and trade, but that changes throughout the lifecycle as different assays are provided by the supplier and customer. And then there is the complex settlement process, which can take months thanks to the standard assays, counterparty assays, self assays, provisional assays and other various assays.
The good news is, you can greatly mitigate the struggles associated with assay recording, tracking and finalization by ensuring your metals trading solution enables you to follow these six best practices:
1. Create a library of payable rules: Determining payable metal content at any point during the trading lifecycle becomes a relatively effortless process if you can create a library of payable rules that can be referenced when defining contractual terms for each element. You should also be able to record different assays through the lifecycle. This allows the payable metal content to be automatically updated when a change in assay occurs.
2. Use real-time reports to reduce price risk: Each payable element can potentially be priced during different quotation periods (QPs) with options. This makes accurate tracking of the payable content and its QP challenging, but is critical to managing the price risk. Using real-time risk management reports takes the pain out of the tracking process by determining the shipments and payable quantity of each element that is getting priced on each fixing day through the QP. This enables the hedging desk to perform the needed hedging activities.
3. Simplify assay finalization with automation: Assay arbitration can be a long process, especially if the assays claimed by each party differ significantly. The finalization can also be incremental, where only a few elements or sample lots are finalized. This leads to challenges in settling the invoices and adjusting the exposures. However, you can simplify this process by ensuring your trading solution allows you to automate assay finalization with defined rules. The solution should keep track of the number of sample lots finalized for each element and the method of finalization (e.g. split; referee; user-defined). It should also provide decision-making tools for determining if a referee is needed for finalizing the assay.
4. Record provisional settlement and payment terms: The inherent complexity of concentrates trading makes for a long invoice settlement process involving multiple provisional settlements. To optimize cash flow management, your trading solution should be capable of recording the terms for these provisional settlements, provide a mechanism for defining the various provisional payment terms, and alert users when an invoice is due to be raised.
5. Establish a referee rules library: If you require a referee for assay finalization because the assays exchanged differ significantly, the final assay imposed may be based on complex rules that change across contracts. To streamline the assay finalization process and eliminate the chance of human error, your trading solution should support a defining library of refereeing rules that can be attached to a contract. It should automatically apply the relevant rule to determine the final assay value when an assay finalization is carried out and a referee’s assay is available.
6. Use analytics for accurate win-loss analysis: Assay contents have a huge impact on the settlement of a concentrate shipment, and during assay finalization or refereeing, one of the parties may win or lose. The large number of sample lots in a shipment makes it difficult to generate an accurate win-loss analysis for decision-making. The trading solution should provide analytics using different variables (e.g. by referee; by shipment; by supplier) so who has won and who has lost can be determined with the utmost accuracy.
CTRM software solutions built specifically for the metals industry provide the functionality to address assay management challenges and more. Eka’s advanced solution supports the complex concentrate supply chain from end-to-end, providing the ability to effectively manage assaying, contract terms and conditions, pricing, refereeing, settlements, financial hedges and P&L. Eka’s next-generation metals trading and risk software enables companies to track all pricing details, including complex concentrate factors such as formulas, penalties, and charges.