Evolution of Physical Commodity Markets Julie Lerner CEO

Evolution of Physical Commodity Markets Julie Lerner | CEO JPMCC August 12, 2019

Evolution of Physical Commodity Markets STATUS QUO PATTERNS IN MATURATION WHAT’S NEXT

HISTORY OF EXCHANGES | Stocks, currencies & futures Electronic Price Bulletin Traders using algorithms to analyze markets, computers bring efficiency to trading. Online pricing reduces the need for phone brokers 1971 NASDAQ Launch High Frequency Trading 1987 CME Globex 1991 E*Trade 2015 CME Open Outcry Pits Close 2016 Yahoo Chat Closes chat Physical Closes traders in a tailspin Straight-through Processing Capital market transactions are completed without manual intervention. Pan. Xchange © 2019 3

THE PROBLEM | Time Warp Food, metals & energy markets are globally critical and yet remain inefficient. 1 A 2 B 3 C 4 D 5 E Opaque, inefficient, fragmented Pan. Xchange © 2019 4

THE SOLUTION | Pan. Xchange (PX) is an OTC trading platform for physical commodities: energy, foodstuffs & metals. Highly scalable Saa. S business model with broad and strong IP protection. 1 A 2 B 3 C 4 D 5 E Aggregated, transparent, democratized Pan. Xchange © 2019 Real-time and historical data creator and provider. Cash market prices where true supply meets demand.

COMPETITIVE ADVANTAGES Only platform in production built by a trader for the trade. Solves known problems Commodity and geography agnostic. Scalability is essential. Patent protected. Pan. Xchange © 2019 Full negotiation of all terms, not a bulletin board or auction. 1 Intuitive 2 Efficient 3 Proven 4 Patent protected

STATUS QUO Pan. Xchange © 2019 PATTERNS IN MARKET MATURATION WHAT’S NEXT

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by From raw material supply chain to mature commodity NEW SUPPLY ENTERS THE MARKET • New entrants gain market share by offering competitive pricing & execution • Optionality of supply eases concern of surety of supply • Price becomes key driver in supplier selection • Competitive spot market is established EXCHANGE ADOPTION • Assures equilibrium in market • A constantly-available facility to buy & sell • A facility for financing inventory holdings • A facility for hedging MARKET BASED PRICING CONCENTRATED SUPPLY CHAIN • Surety of supply = biggest concern • Pricing dominated by few players • Non-competitive market • Regional benchmark prices based on spot market transactions arise • Benchmarks provide price discovery & transparency • Benchmarks are an essential stepping stone toward efficient price hedging • Industry association is needed to aggregate rules, disputes,

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by Supply chain management to trading to M&A to efficient supply chain manageme NEW SUPPLY ENTERS THE MARKET CASH MARKET BEGINS & MARKET BASED PRICING EXCHANGE ADOPTION OVERSUPPLY CONCENTRATED SUPPLY CHAIN VERTICAL INTEGRATION Via M&A FOCUS ON OPERATING EFFICIENCIES

IDEAL MARKETING & PROCUREMENT Blending surety of supply with price discovery DEDICATED SUPPLY CHAINS • Guaranteed trade flow • Preferred vendor status • Access to capital Pan. Xchange © 2019 Optionalit y Informatio n Leverage ONLINE, OPEN TRADING • Price discovery • Market access • Multiple trading partners Balance allows you to be a market maker, not a price taker

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by The historical move from supply chain to commodity market 1 CONCENTRATED SUPPLY CHAIN • Surety of supply = biggest concern • Pricing dominated by few players • Non-competitive market

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by The historical move from supply chain to commodity market NEW SUPPLY ENTERS THE MARKET 2 • New entrants gain market share by offering competitive pricing & execution • Optionality of supply eases concern of surety of supply • Price becomes key driver in supplier selection • Competitive spot market is established CONCENTRATED SUPPLY CHAIN

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by Supply chain management to trading to M&A to efficient supply chain manageme NEW SUPPLY ENTERS THE MARKET CASH MARKET BEGINS & MARKET BASED PRICING • Regional benchmark prices based on spot market transactions arise 3 • Benchmarks provide price discovery & transparency • Benchmarks are an essential steppingstone toward efficient price hedging • Industry association is needed to aggregate rules, disputes, etc. CONCENTRATED SUPPLY CHAIN

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by Supply chain management to trading to M&A to efficient supply chain manageme NEW SUPPLY ENTERS THE MARKET CASH MARKET BEGINS & MARKET BASED PRICING 4 OVERSUPPLY CONCENTRATED SUPPLY CHAIN • Investors began to take notice of the opportunity in Phase 2 • Too many come in - in 24 months, 23 frac sand mines in approximate 20 mile radius came online • Inadequate storage facilities

Pan. Xchange © 2019

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by Supply chain management to trading to M&A to efficient supply chain manageme NEW SUPPLY ENTERS THE MARKET CASH MARKET BEGINS & MARKET BASED PRICING 5 OVERSUPPLY CONCENTRATED SUPPLY CHAIN VERTICAL INTEGRATION Via M&A • Larger players seeking new profit opportunities • Scooping up smaller players in times of oversupply and/or downturns • To a degree, it reverts to Phase 1 with long term contracts

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by Supply chain management to trading to M&A to efficient supply chain manageme NEW SUPPLY ENTERS THE MARKET CASH MARKET BEGINS & MARKET BASED PRICING 6 OVERSUPPLY CONCENTRATED SUPPLY CHAIN EXCHANGE ADOPTION VERTICAL INTEGRATION Via M&A • A constantlyavailable facility to buy & sell • A facility for financing inventory holdings • A facility for hedging & 3 rd party investment

Evolution of commodity markets as seen through the behavior of the major traders 2005 Source: Financial Times 2012 2013

Evolution of commodity markets as seen through the behavior of the major traders 2013 Source: Financial Times 2016 2017 2018

Copyrigh t STATUS QUO PATTERNS IN MARKET MATURATION 2019 by WHAT’S NEXT

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by Supply chain management to trading to M&A to efficient supply chain manageme NEW SUPPLY ENTERS THE MARKET CASH MARKET BEGINS & MARKET BASED PRICING EXCHANGE ADOPTION 7 OVERSUPPLY CONCENTRATED SUPPLY CHAIN VERTICAL INTEGRATION Via M&A - Nowhere else to go FOCUS ON OPERATING EFFICIENCIES

Commodity market opportunities Purely physical trade based on long term agreement Physical trade based on a mix of spot and long-term agreements Wheat Financial market develops financial market infrastructure emerge Vibrant spot and financial market - adjacent markets developing Petchems Met Coal Financial Oil Physical Oil Rubber Steel Iron Ore FX Gold Thermal Coal Financial Gas LPG Ammonia Execution infrastructure evolved, majority of volume controlled electronically Natural Gas US Natural Gas CE Pulp Bio-diesel Uranium Sulfur DAP Cement Stainless Steel Tankers Source: BCG LNG Aluminum Equities Bulk Freight SG Power Corn Oil Tankers Bio-ethanol Soybean Natural Gas EU Palm Oil Biomass Baltic Freight Markets CO 2 EMC Energy Markets Nickel Gvt. Bonds

• The world’s four largest agribusinesses are working together to standardize and digitize international grain trades using technologies such as blockchain and artificial intelligence. • The aim is to replace a system that relies on paper contracts and invoices and manual payments with an automated electronic system. Source: Reuters, October 28, 2018

Gartner Technology Hype Cycle

Copyrigh t Blockchain Mania…… Blockchania! • The most basic of challenges • What are you putting on blockchain? • Biggest challenge in physical commodities… humans are unreliable • Defaults • Swapping actual physicals • Why pilots are nice but not proof of concept 2019 by

COMMODITY MARKET EVOLUTION Copyrigh t 2019 by Supply chain management to trading to M&A to efficient supply chain manageme NEW SUPPLY ENTERS THE MARKET CASH MARKET BEGINS & MARKET BASED PRICING EXCHANGE ADOPTION OVERSUPPLY CONCENTRATED SUPPLY CHAIN VERTICAL INTEGRATION Via M&A FOCUS ON OPERATING EFFICIENCIES

Questions? Julie Lerner | CEO julie@panxchange. com Check out our biweekly newsletter Hot Commodities