VANCOUVER (miningweekly.com) – A group of former traders at commodity giant Glencore has created an innovative new cloud-based mineral exchange to make it easier for producers and users to trade physical commodities – cutting out the often costly middle man.
“We are reinventing the industry,” Open Mineral Exchange (OME) co-founder and COO Ilya Chernilovskiy told Mining Weekly Online in an interview from Zug, Switzerland.
According to Chernilovskiy, OME streamlines contract negotiations and execution to increase efficiency and profitability for the participants. The Swiss-based start-up, founded by former Glencore traders, strives to disrupt the decades-old model for trading physical commodities through use of technology and analytics. The company will initially cover zinc, lead, copper, gold and silver concentrate markets and plans to expand to other raw materials in the future.
“We are creating a new way to trade commodities, enabling producers and users to trade more efficiently, and maximise profit, since no fees are payable to a middle man. Traditionally, there were large sums of money left on the table to cater for the intermediaries. We are sidestepping this to the benefit of the selling and buying parties,” he said.
The online platform works by miners and smelters posting tenders, getting offers from counterparties and agreeing to deals, paying a fee to the platform, which is being financed by its partners.
He noted that, since the trading platform launched on September 1, OME has managed to attract some heavyweight customers, although he declined to provide membership numbers. OME previously stated that registered members already represent more than 20% of global tradeable supply and demand of base and precious metal concentrates.
“Previously, most contracts required lots of emails, calls, meetings and were often done through intermediaries. Now OME provides the tools to negotiate profitable and efficient contracts directly online, allowing its members to take advantage of better market terms and fluctuating raw materials requirements throughout the year,” Chernilovskiy stated.
However, there is significant demand for using the platform and the company is evaluating adding secondary metals to the platform in due time.
“We have met with multiple producers, end-users and trade service providers and the feedback has been very positive. We are confident there is a massive demand out there for improved efficiency, transparency, and better market analytics. We have tailored our platform to give buyers and sellers the data and analytics they really need.”
Chernilovskiy does not believe that traditional markets for metals such as the London Metals Exchange, or the Shanghai Futures Exchange pose a threat to the business model, since they are mainly focused on refined metals, rather than concentrates. However the traditional markets remain important tools for price discovery and an important reference for market liquidity for the metal markets.
“We are setting out to create a very transparent and efficient market place, something that has been lacking in the concentrates market up to now,” Chernilovskiy advised.
The new technology increases transparency and significantly lowers cost; disrupting an industry that has operated the same way for decades.
Headquartered in Baar, Switzerland, with operations in Beijing, Lima and Moscow, OME streamlines the tendering of physical commodities, commercial negotiations and contract execution between mines and smelters, increasing efficiency and profitability for its members. The exchange has implemented bank-level security and privacy standards, as well as a thorough KYC procedure to ensure a trusted trading environment.
Before co-founding OME, Chernilovskiy and CEO Boris Eykher both worked at Glencore, after receiving their Masters in Business Administration at Harvard Business School. They have been joined by a team of ex-Glencore commodity traders and mining industry insiders. “The common denominator of our assembled team is that we all have previous experience within Glencore. We have multi-year experience in commodity trading, including exposure to all facets of the market,” Chernilovskiy noted.
Further to offering a platform for global concentrate tenders, OME provides access to trade services such as transportation, quality control and insurance. The platform also brings other critical elements for concentrate trade, including messaging, KYC (the ‘Know Your Customer’ principle) and electronic document exchange, among other services.
Chernilovskiy pointed out that OME is part of the Thomson Reuters Labs Incubator Programme for start-ups.