Current market conditions are forcing many firms exposed to commodities to perform a re-evaluation of their credit risk systems and business processes. As most commodity prices are extremely volatile and progressively rising through time due to issues like shortages, supply chain disruptions of various types including most importantly, political sanctions, increased demand and so on, default by a counterparty is seen as increasingly likely. Indeed, were it not for Government intervention, a few high-profile firms would already have defaulted. However, the need to manage cash more effectively is also driving an enhanced focus on credit risk as many commodity firms face huge margin calls from various exchanges and increased scrutiny by lenders. Importantly, the rapid emergence of regulations around ESG and carbon, whether planned or actual, are also having a huge impact on counterparty credit worthiness. As firms review their credit solutions, they are scrutinizing their ETRM / CTRM solutions and their role in managing credit risk as well.
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