I'm not sure if I agree with this article. They make it sound like, until recently, that profitable trading has been a layup for commodity operators who deal in physicals. I doubt it, except for some of the less liquid markets (ags, softs) where low volumes can move price. I also disagree that arbitrage is dead. I think it has always been challenging and continues to be. If there is any change, it's that time horizons for profitable setups continue to get longer (weeks => months, quarters). Anyway, here's the link to this short article. Judge for yourself. https://www.bloomberg.com/news/arti...lament-world-where-everybody-knows-everything
Indeed... arbitrage isn't dead, it's just become more efficient due to arbitrage... anyone who says arbitrage is dead is on the wrong end of things, and unable to compete. Markets change, trading environments change, rules change... those are facts... and we all need to adapt to be able to continue...
The article actually nails the market pretty accurately. Arbitrage is by no means dead, but it's not alive as it once was. That said, it's been a long-term trend since the spot market was first developed by Marc Rich in the 70s when he could make 15-25% yield per cargo. Rich spawned many offspring over the years that are now all competing for yield. These days a ~1% margin is probably the standard with some of the more illiquid petchems and aromatics yielding maybe slightly more. Like the article alludes to, for the past 10+ years it's been about finding optionality in the supply chain. Hence why you see the large physical traders getting into retail distribution to secure downsteam buyers (Traf buys Puma; Vitol buys Shell's Australia and Africa petrol stations), term contracts for steady upstream supply (Traf and Rosneft in bed) storage farms for playing the contango (Merc), refining/blending (Gunvor, Koch), etc. etc. There are literally hundreds more examples.
I think ppl needs to realize the faster you adapt to the new changes and position yourself correctly to trade on the new opportunities, the new commodities while you try to salvage the existing but soon to be dead assets aka dumping them to any "willing buyers" the further ahead you will be. Changes always bring along losses and that's unfortunate but it also brings in new opportunities. The key is to grasp the RIGHT new opportunities AND at the RIGHT time.
you need to understand how the physical markets work. they are not referring to derivatives arbitrage...they are talking about the arbitrage under the cash and carry model that phsycal traders employ so if you are glencore or trafigura, you buy copper in chile whole sale directly from Codelco. you put it on a vessel and it takes 120 days to get to china where they are contracted to deliver that copper. what happens if you have to deliver the copper to the chinese before they contractually price it? under these consignment deals, you give credit but you tell the chinese...ok for credit, you to use the average price from last month. think for a second how much margin you can build in this way? this was the old school model and why guys like marc rich and his sidekick pinky became billionaires now, everyone knows where copper is and wants price transperancy so if you look, physical trading companies have seen a decline in revenue and no longer can rely on regional arbitrage and location premiums to make money