Commodity banks bounce back

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17 December 2009

Commodity trade banks have had to face a range of difficult issues and circumstances through the course of the global economic crisis. Now though, with some lessons learned and certain sectors growing stronger, the traditional players are eyeing the changed scene and new opportunities. Michele Martensen assesses the market.

Much has happened to the commodity finance market since the birth of the financial crisis, the peak of oil prices in June 2008, the slide in demand for metals and other key commodities, followed by the general banking market carnage stemming from sub-prime. The landscape has changed and so have commodity banks. Lessons have been learned, but for some these lessons have been self-enforced detention rather than an MBA course.

A number of prominent banks – previously big players in the market – found themselves caught up with restructurings/workouts and have been much less visible than pre-crisis. Credit appetite for commodity finance risks has been severely impacted in certain areas. Commodity price volatility further dampened appetite, causing difficulties for a number of highly leveraged players. Metals and mining and Russia and the CIS – on the steel side especially – have been particularly shocked. Banks, such as HSH Nordbank and...

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Poll

Will Russia’s recent ban on grain exports result in a significant rise in private risk insurance claims from grain traders unable to fulfil their contracts?

Yes – there will be more claims. The government’s actions allow traders, with PRI cover, to make claims through contract frustration.

No - the majority of Russia’s wheat production, some 70%-80%, is used for domestic consumption so the contracts represent only a small portion of the total wheat market, limiting the amount of potential claims.

23%

No - traders had a week’s notice before the ban allowing them to secure alternative supplies to fulfil contracts stated as optional origin.

23%

Maybe - but claims are likely to be limited to traders dealing in soft wheat whose contracts demand they source wheat only from Russia.

46%