Commodities boom: How the marketplace for alternative data has grown

The past few years have seen volatile commodity prices, caused by the lasting effects of the global pandemic, the war in Ukraine and other geopolitical events.

Price shocks in markets from natural gas to uranium have been in the news regularly, making commodity sector intelligence more important – and valuable – than ever.

It has become a core area of interest for many hedge funds, which use alternative data as part of their investment research process.

Getting a head start on trends in the commodities space can lead to big returns: Citadel, one of the world’s largest hedge fund managers, made more than $4bn in its commodity-trading business in 2023.

It is therefore no surprise that Neudata has seen a big increase in hedge fund interest in commodities data: there was a 577% year-on-year rise in commodity data-related client requests from clients in 2023.

This primer will cover trends in the space, the scale of the opportunity, examples of commodity sectors where alternative data can deliver an edge, and how Neudata can help.

A new super cycle?

The commodities market before the Covid-19 outbreak was more predictable, and interest was focused on major energy markets like crude oil and natural gas.

The landscape has changed dramatically this decade. Supply-chain bottlenecks stemming from pandemic disruption combined with a surge in demand as restrictions eased. There have been price spikes in many markets, from natural gas in the immediate wake of the pandemic to wheat after war in Ukraine disrupted supply between 2022 and last year.

Uranium, a more niche market, hit a 16-year price high in January amid renewed interest in nuclear power.

All of these events have contributed to talk of a commodities boom in the 2020s, as seen in the 2000s. For hedge funds, a key data buyer, opportunities abound, particularly in more niche markets which were previously harder to trade.

Alternative data sources

The alternative data market in this space is growing exponentially to meet higher demand, with providers increasing their offerings and raising new capital:

• CargoMetrics, which serves the maritime shipping and logistics markets, has launched seven new datasets — having previously only offered one.
• Vortexa, which provides analytics in energy and freight markets, raised $34m in its Series C funding round in January.
• Kpler Holding, which provides global trade intelligence, received a $200m investment from Insight Partners, a software investor, and others.
• CropProphet, which provides global crop weather risk information and insights for grain traders, continually expands its weather intelligence offerings to meet customer commodity trading requirements.

The marketplace for alternative commodities data has not only increased – Neudata lists almost 300 datasets of relevance to commodities traders – but the type of data offered has changed too.

Many more sources of market data and pricing benchmarks are now available, from mainstream resources like oil and gas to niche metals and agricultural commodities. Their sophistication has increased too. The platform now tracks a range of trade flow data – for short- and long-term futures positions – and inventory and stockpile data, for crude oil and metals.

Datasets are still more widely available in the biggest markets. But growth in supply and demand is concentrated in those markets.

How is it used?

Different types of datasets can provide intelligence to hedge funds trading commodities in numerous ways. Web scraping, sentiment and social media data can all be harnessed to gain insights into key markets. Satellite and aerial datasets can be used to detect crop trends, for example.

How does this work in practice? One part of hedge fund Citadel’s push into commodities revolved around developing its weather intelligence effort to inform commodities market investments. Weather and electricity data are of huge relevance to agricultural bets, and increased interest here is a great example of how interest in less-liquid/more turbulent markets – from coffee to soy – has rapidly escalated.

China is a growing market for commodities. It is an example of how quickly things change in the space: The country’s futures industry didn’t exist until 1990, but today China makes up 71% of global commodity futures trading. International access to China’s domestic market is slowly improving.

‍Neudata’s role

Neudata is an alternative data-focused research platform that provides an expertly curated alternative data catalogue.

We help institutional investors, corporations and leading global organisations find the most relevant alternative data sources to use in their internal data ingestion processes.

Our platform is the global authoritative source for unbiased, independent alternative data intelligence.

If you are a data buyer looking for an introduction to the alternative data landscape in commodities, request a free trial to discover how Neudata can help.

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