Notes from the other side…
Retired metal merchant, Anthony Lipmann, illuminates trading for the young entering the world of metals.
I’m often asked what skills are required to be the perfect metal merchant? The unanointed often assume a degree in chemistry, metallurgy, or maths to be high on the list. Here are my five.
1. Are you able to give and gain trust in business?
I was once told by an old marine insurance hand, in defence of his industry, that his world was the cornerstone of all trade. His case was that it removed the need for trust. What he was saying was that marine insurance let companies and countries, who neither knew nor liked each other, trade across continents.
He was right about the comfort insurance provides sellers and buyers with regard to the risk of losing value of goods on the high seas. But what of the nature of the contracts behind the goods? These are put in place with a panoply of international law and practice to uphold them. But what happens when a contract, for whatever reason, fails in unexpected ways? What happens when an incident occurs that makes insurance, contract law, practise, and even force majeure, redundant?
Once such event occurred early in my career, when a boat load of alumina I had contracted to sell to the Soviet state trading organisation, Raznoimport, departed Antalya and arrived in Batumi in Georgia quicker than the documents took to reach London. When the documents arrived – not one was correct (consignee, shipper made out to others, and other mistakes that would have meant the contract was null and void).
The date was close to the end of the Soviet Union and the state that had purchased the goods was soon to be defunct. In this case, what can you rely upon?
Despite our different allegiances, I considered my Russian counterpart to be a friend in business. We had lunched together, talked about his times when he had served in the Russian Iranian Embassy at the time of the return of Ayatollah Khomeini to Teheran in 1979. We had travelled within Russia together where we had eaten sturgeon, and he’d taken me to the Holy City of Zagorsk.
Quite simply, we trusted each other. “Just Tippex™ the documents”, he said, “send them through via your bank to my desk and I will make sure you are paid promptly by Vnesheconombank”.
The newbie needs to understand how contrary to practise this is. You simply do not doctor official documents. But this is what, with the aid of a typewriter, I did in front of the manager at the BNP Bank in King William Street.
It was too late to reclaim or put a lien on the cargo (how could I have done this in Georgia anyway?), and the documents were technically impossible to deliver against the contract. All that remained was trust; the type of trust people build up in the old-fashioned way by getting to know each other. The documents were delivered to Moscow as agreed and I was paid just as the doors were closing on the Soviet Union.
Ask yourself before going into the metal trade whether you think you are capable of this? Because you are sure going to need it.
2. Do you need to like metal?
It’s a job, isn’t it? Why do I need to like it too? Good question – and I’m glad you asked it. I was lucky, because I really liked my job, and I hope it made me a better metal merchant as a result. I liked learning facts about where elements arose in nature, how they were extracted and processed, who required and applied them, what were the factors that affected their supply and demand. I also liked it when I had the chance to go down a mine, to see where the journey began: seeing production lines and melting shops, discussing amazing applications of elements with users.
End users often expressed admiration for what I did – wearing out the boot leather to seek out elements in various deserts across the world or stomping round scrapyards in the UK. I felt their admiration was misplaced – I liked my job, but it wasn’t clever.
For me, the scientists were the real gods – the folk who transformed elements into alloys and products, or who found ingenious ways of extracting them from nature. My view is that I do not think you can really fulfil your potential if you are not interested in your work. You can’t fake it. I loved the look and feel of metal, and I got excited when I saw a factory or a yard, knowing I might discover some new use or a piece of knowledge that might assist me in my trading life. Do the same and you won’t go far wrong.
3. How important is paperwork?
I have come across metal merchants who think they are too important for paperwork. Watch these ones carefully. They will leave a trail of destruction and require armies of back-room staff to tidy up.
In my belief system, the trader is responsible for his or her own paperwork. The reasons are twofold. First, getting involved with the paperwork (meaning the logistics of every metal trade you do) will assist smooth delivery and produce happy customers. Second, when things go wrong, the trader who has been involved with paperwork will be better equipped to sort it out.
The other benefit of getting involved with paperwork is that it is God’s way of keeping your hands busy to avoid over trading. Over-trading means buying and selling on small margins to look active. In many of the offices in which I worked those who traded frequently appeared to be the stars. Especially when young, we thought signing lots of contracts made us look good. In one office at which I worked the lead cobalt trader entered many contracts per day.
Although his position at the end of each day was not huge (if judged by the long or short of it in metric tons), the issue was that when it came to delivery time, the incoming grades often did not match the agreed specification on the sales contract. So, every prompt date generated swaps and rushed purchases, often at unhelpful prices. So, take it easy, don’t get caught up in the fun of writing contracts without the concomitant enthusiasm for the paperwork – it’ll make you a better metal trader and it is good for the soul.
4. What is intelligence gathering and how can it be used?
This is intrinsic to what you do. You need a combination of macro (seeing the sweep of history in relation to a metal and its uses and prices) as well as the micro (the factors here and now which affect supply/demand and price). Critical to all this is intelligence gathering and interpretation. In the old days, quite a lot of this was done over the phone or over lunch in the pub. In those days information was exchanged, sometimes under the influence of a pint; at other times, simply by reading the signs in the demeanour of your opposite number, someone with whom you might have interacted for years. But information is one thing, and interpretation another.
Essential to the good metal merchant is how to use information. If the goal is position-taking, which it usually is, the essential purpose of gossip is to pick up key facts. The good trader in, say, arsenic (I am using an element here that can have almost no significance to anyone reading this) already knows the names and origin of all the world’s main producers, their output, and grades. What the trader is seeking is that crumb of information about a new use, a new demand, a break in supply, or production problem, an embargo or new law – something that could materially affect supply or demand and therefore price. It is a ‘crumb in context’ that is required, not a ‘teach yourself arsenic trading’ manual.
5. Don’t be too confident
Lastly, the new-hop metal merchant tends to assume that those around him or her know it all. This is certainly not true. Even the best metal merchants make mistakes – usually quite frequently. Best to realise that trading will make you fallible even if you believe you are not. It is therefore worth knowing before you start, there is no such thing as an expert – just a few people who survived for a while by sorting out their worst mistakes, possibly learning from them, and hoping to reduce their quantity in the future. Trading metals will test you every day. If you do not encounter problems, something is wrong – either you cannot see them, or you are not trying hard enough. The only confidence you need is to know you will face every problem head on and do your best to find solutions.
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All in all, these five tips are no more than the five that came to me today as I was writing this piece. Many people have written books about the metal business – theories about the technical sides of trading, about scandals and misdemeanours, or shortages and booms, or making money. Not so many dwell on the metal merchanting life. I find this and the stories we tell each other over lunch and drinks to be the part that interests me most – a tiny record of people for whom, like me, the metal was my life.
By Anthony Lipmann
Image by Tiff, Shuttlestock
