Imogen Dillon Hatcher serves as President of Platts, a division of McGraw Hill Financial (MHFI), and the leading provider energy, petrochemicals, metals and agriculture information, and a premier source of benchmark price assessments for those commodity markets. In this role, she is responsible for fostering business growth through superior data quality and the delivery of new financial technologies that help drive global financial markets.
Before joining S&P Capital IQ, Ms. Dillon Hatcher spent 10 years with index provider FTSE Group. In 2010, when FTSE was acquired by the London Stock Exchange Group (LSEG), she was named Executive Director of Information Services (IS), running global sales for that organisation’s index, real time, software and reference data teams. In 2012, she was named LSEG’s Executive Director of Global Sales.
1. What is your perspective on this year’s SIEW theme of “Global Energy Transitions”?
The theme of “Global Energy Transitions” is very appropriate for this year’s SIEW. All major commodities have seen a steady shift in trade flows from West to East over the past 10 years. In the past 18 months, we’ve seen a series of record highs in the oil trading volumes captured within the Platts Dubai price assessment process. Liquidity in crude oil underpinning the Platts Dubai price assessment is also at an all-time high. Particularly, there has been an emergence of a number of “power house” traders, namely from China. The burst of Chinese market activity has triggered interest by other entities to enter the arena with derivatives or additional pricing mechanisms. Asia now has a much bigger say in the world commodity markets and China aims to have its commodity markets priced off its own exchanges and price references.
2. There’s been speculation that a new Asian benchmark for oil trading may be established. What are the market implications if this is realized?
The ongoing discussions around new pricing benchmarks are natural and healthy for the industry. The market thrives on information and Platts welcomes initiatives that help broaden liquidity such as the creation of futures exchanges and risk management tools that enhance market efficiency.
It is the market that determines which price references will be used as a benchmark. There can be different types of benchmarks, such as cash benchmarks and futures benchmarks, and often they’re used in combination for various purposes. Futures and other derivatives are the natural evolution of a robust physical spot market. Based on our experience, successful development of futures contracts tends to substantially boost physical trade and OTC swaps markets.
Platts price assessments reflect the physical spot markets and we regularly evaluate our processes to ensure they reflect market behavior. Our methodologies include verifying with participants that the cargo exists, who owns it, and that it is deliverable. At the moment, we are consulting market participants regarding the acceptance of additional, similar crude oil deliverables in the Platts Dubai MOC price assessment to ensure it continues to reflect the market’s evolution. This is not a new concept and more than a decade ago, we added Oman and Upper Zakum as additional crude oils that we’d accept under an alternative delivery mechanism in the Dubai price assessment process. We are proud of our track record in benchmark methodology innovation and evolution.
3. 2015 has been a time of uncertainty for commodities. What role do you see China and the rest of Asia playing in the industry going forward?
China continues to have a strong impact on commodities, which is being felt across Asia and globally. We see persistent low commodity prices, coupled with low domestic demand, leading to higher and cheaper exports. At the same time, structural and regulatory reform will help to rebalance the Chinese economy, stabilize the fall in growth and liberalize overseas access to Chinese financial markets.
However, China’s challenges around the transition include lower domestic demand. The reduced consumption is now having an impact on various sectors. For example, China is now exporting cheap steel in large quantities. Steel exported from China was at a high of 52.4 million tonnes for the first half of 2015, a year-on-year rise of 28%. China is also becoming a price setter of some major agricultural commodities. This includes soy, corn and wheat, as it becomes increasingly dependent on food imports to meet a higher protein demand from its middle classes.
While China tends to dominate discussions around Asia’s influence on global commodity markets, there are other significant areas of importance, particularly when it comes to the impact of export flow. A good example is what we are seeing in the Australian wheat market, where three quarters, 18 million tonnes, of their domestic production is now being exported. This represents the fourth largest market size behind the production in the EU, the US and Russia. We are planning to launch an Australian Wheat FOB price assessment to act as a central reference for their various export destinations across Asia.
4. What is the outlook for the development of the LNG market in Asia?
The Asia LNG market is undergoing a period of transformation. Structural shifts in the market are likely to have far reaching effects both now and in years to come.
A growing global surplus of both LNG and LNG carriers, as well as a slew of new production with no destination restrictions, is set to see a shift both in global trade flows and trading behavior. We believe that shift will prompt an increase in spot market liquidity and a blurring of the lines between traditional buyers and sellers, as Asian LNG buyers turn to trading in order to dispose of surpluses and balance their portfolios.
Platts is about to launch our LNG Navigator to provide the market with a service that will allow buyers, sellers and analysts to forecast these shifts in market fundamentals and provide transparency around price and trading behavior in one place.
Beyond the spot market, buyers in Asia are demanding more flexibility in their long term contracts. More specifically, destination flexibility, take or pay flexibility and indexation flexibility. Crucially buyers are seeking to price LNG requirements using an indexation point which reflects supply and demand fundamentals in their home markets. The Platts JKMTM price benchmark provides a robust and transparent pricing mechanism for Asian LNG which has already been adopted as a price reference in numerous contracts.
Liberalization and deregulation of Asian power and gas markets is also likely to have an impact on the trading behavior of Asian utilities and prompt a growing need to hedge exposure to LNG prices. Transparency will again been crucial to facilitating market development and supporting risk management activities in this space.
5. You’ve just become President of Platts, what are your priorities?
Prior to Platts, I was the President of S&P Capital IQ, which is also part of McGraw Hill Financial and I am fortunate to have joined Platts at an exciting time as the company continues its successful evolution. We have doubled the size of our business in Asia over the past six years and have undertaken a number of strategic acquisitions, such as Kingsman which enabled us to expand into sugar. My main priority over the coming months will be to support our leadership team execute on our business goals. Specifically this involves expanding our price benchmarks around the world and we see exciting opportunities in Asia in new commodities, such as wheat.
In addition, we have just announced the global launch of our analytics capabilities through a new product portfolio called Platts Analytics, which is aimed at helping customers make better informed trading and business decisions by understanding the drivers of, and contributing factors to, the supply and demand dynamics which ultimately drive commodity prices. In our content team, we are focused on evolving key benchmarks such as Brent and Dubai and implementing new platforms with respect to price reporting and news creation. The leadership team is also focused on investing in technology and building out our trading services capabilities, such as our relationship with exchanges. Finally, I’m keen to play an active role in our stakeholder engagement activities where we proactively speak to customers, market participants and policy makers, which I see as especially important in these turbulent markets.