Selling/Brokering Commodities Globally

[Tahoma]

Hi, Fast Laners

I have a good relationship with an individual who operates a mine in another country (outside of the USA). He would like me to help sell his ore to buyers around the world. I don't know much about commodities trading or brokering, and it is difficult to find out complete information for doing so on the Internet. My understanding is that there are a lot of shady dealers and that people in poor countries often get cheated, which is why they want to work with me--they trust me. Also, I trust them.

Is there anyplace I can find out about (for beginners) being a commodities trader? Is it possible to simply broker the deal between buyer and seller? If both are overseas (buyer and seller), what are the rules and regulations governing my activities (e.g. is there licensing involved)?

There are some B2B sites like TradeKey, WorldTrade, and EC21. Has anyone successfully used these to sell commodities?

Thank you for any information.

 

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[MJ DeMarco]

Calling @Kak , I think he might be in a similar space.

 

[Kak]

Hi @Tahoma

I have worked in commodity chemicals, but our business primarily deals in our own proprietary blends right now. The commodity stuff, for me at least, has always just been the "good old boys club" type of deal someone knew someone and we put a deal together on contract for a long time. OK margins at best, but the value is in the fact that it just goes forever. They are not company builder deals, but they are bill paying.

Is it possible to broker a sale between a buyer and a seller? Yes. Absolutely.

I would say it is better to put your own financing and transportation together and bill the customer yourself. I would want to be the only connection between the two companies or they can cut you out.

Bottom line with a commodity, if you can get product under market, you can get business. If you are one penny over market, your supplier is useless. Also with razor thin margins on commodities, transportation costs are a HUGE decider of profitability. It is often more profitable to sell as near the source as possible to minimize these costs.

I don't know what you are selling, but if there is someone also mining for it and selling it closer to your intended customer, they will probably be able to undercut you profitably.

My advice is to see what kind of quotes you can get on material do some research on how competitive that is and how much room there is for you.

 

[Tahoma]

Hi @Tahoma

I have worked in commodity chemicals, but our business primarily deals in our own proprietary blends right now. The commodity stuff, for me at least, has always just been the "good old boys club" type of deal someone knew someone and we put a deal together on contract for a long time. OK margins at best, but the value is in the fact that it just goes forever. They are not company builder deals, but they are bill paying.

Is it possible to broker a sale between a buyer and a seller? Yes. Absolutely.

I would say it is better to put your own financing and transportation together and bill the customer yourself. I would want to be the only connection between the two companies or they can cut you out.

Bottom line with a commodity, if you can get product under market, you can get business. If you are one penny over market, your supplier is useless. Also with razor thin margins on commodities, transportation costs are a HUGE decider of profitability. It is often more profitable to sell as near the source as possible to minimize these costs.

I don't know what you are selling, but if there is someone also mining for it and selling it closer to your intended customer, they will probably be able to undercut you profitably.

My advice is to see what kind of quotes you can get on material do some research on how competitive that is and how much room there is for you.

Thank you for the information. This is helping to crystallize my understanding.

Some details:

• I know the mine owner. The mine is in a country fairly close to the likely destination country. Shipping would not likely be the deciding factor.
• The ore of good quality and is in very high demand.
• The price I was quoted for the ore per MT is less than what I see quoted on TradeKey, WorldTrade, and EC21, and other commodity buying/selling sites. I don't know how well those actually reflect the prices of the ore, but if they are accurate, the I have a good margin.
• The mine owner does not do the transactions himself because he is concerned about getting an order, shipping it, and then having the seller renege on the payment. This has not happened to him, but to other miners he knows. The mine owners and operators are not sophisticated people and they do not speak English. They are concerned with being taken advantage of as described.
• I do not have a customer yet, but I see many interested buyers on the sites (TradeKey, WorldTrade, and EC21). Have you worked with these sites?
• The orders are between 5000MT/mth and 200,000MT/mth. Quite large.

I don't have a good grasp of how a large international transaction like this takes place, and how to guarantee buyer payment.

Some questions:

• Is it typical for a buyer to pay the reseller (myself) and the reseller to then purchase the ore and arrange for the shipping? This would be the ideal arrangement for me.
• Or is it more expected that the reseller (myself) would finance the purchase of the ore and then resell it to the end customer? Much riskier for the seller.
• Given the international boundaries, the shady practices described, the large quantities, and the shipping times, I would think the risks of losing money on any arrangement are quite high. How to mitigate those risks; is there an escrow system for these types of payments?
• I'm not willing to set it in motion without guaranteed payment, and the buyer is unlikely to pay me without the cargo already at his port. What is the way this normally happens?

Thank you again for your information

 

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