Systemic risk of commodity traders

Abstract

We examine the disruptions to global commodity flows following the default of a commodity trading firm. The physical commodity network is operated by a handful of large traders that are responsible for the timely delivery of raw materials and inputs to industrial production. We propose a model to simulate the resilience and response time of the network following a shock. Our results suggest that a number of commodity traders carry significant systemic risk. The forced removal of a trader from the network has considerable implications for the prices and availability of physical commodities over a period up to 12 months.