StanChart sees 30pc growth in commodity trade
Singapore, September 1, 2011
Standard Chartered expects to post a 30 per cent year-on-year growth in its commodity trading revenue in 2011 on strong demand from its clients in Asia, Africa and the Middle East, a senior company official said on Thursday.
The bank is also looking to expand physical trading in various commodities such as coal, iron ore, palm oil and base metals, Ashish Mittal, the bank's global head of commodities sales told Reuters.
'The commodity business is a huge focus area for the bank,' said Mittal, adding that its commodity clients have doubled in the past two years.
'Over the past few years, we've consistently done an average growth of 30-40 per cent' he said, adding that the business started in 2006.
Standard Chartered, which provides hedging services to its clients in precious and base metals, energy and agricultural products, could expand its physical trading to act as a link between its clients -- both producers and consumers, Mittal said.
'If we finance a mine, we might get an offtake that we may offer to our existing clients,' Mittal said, without giving any timeline for the start of physical trade. 'We're closely looking at iron ore, coal and palm. Base metals are an opportunity too.'
The bank is already financing physical inventory and are trading physical precious metals, he said.
Standard Chartered's focus in Asia has shielded it from market turmoil and debt crises in the United States and Europe, Mittal said. Fears of another U.S. recession and a debt crisis in the euro zone sparked sell-offs in global markets in August.
'On a relative basis, people see us as a stronger credit because of our limited or negligible exposure to Europe. That works favourably for us,' Mittal said. 'We have probably benefited as some of the clients are worried about increasing their exposures to other European institutions.'
Asia's commodities business sees itself largely insulated from looming fears of another global financial crisis, with 10 banks and oil trading houses contacted by Reuters saying it was business as usual in the market.
Instead, the recent volatility in oil prices lifted trade as producers and consumers have been hedging, Mittal said.
'There has been a heightened interest in taking advantage of the recent market moves,' he noted. In August, the front-month Brent contract swung above $120 a barrel and slipped below $100.
For Brent at 'around $120, we saw interest from producers.
Between $105 and $110, we've seen a fair amount of hedging from consumers,' he said, but declined to elaborate on the trading volumes.
Stanchart is bullish on oil and expects Brent to rise toward $125-$130 a barrel in the next 12 to 24 months on limited supply as long as the global economy does not slip into recession again, he said.
'Oil is probably an easier commodity to take a view on because supply is limited and demand continues to pick up in Asia and some of the other developing parts of the world,' Mittal said.
Delays in commodity projects during the 2008 economic crisis have caused a supply-demand imbalance which is more pronounced for copper, coal and iron ore, he said.
'What we're seeing is a supply-demand imbalance which I think will last until 2013-2014,' Mittal said.
Asia demand underpins gold sentiment
The bank, which is active in gold trade in Asia, expected Asia to become more influential in precious metals' market as the growing demand from India and China is expected to support bullion prices in the long term.
The combined gold demand in the second quarter from these two countries, the world's top two gold consumers, exceeded 400 tonnes and accounted for more than half of the world's total demand, said the World Gold Council.
'For the medium term, we see a lot of upside for gold,' said Daniel Smith, Head of Metals Research at the bank, 'One of the key drivers is panic over the economic outlook, but I think the upswing in demand from both India and China will be far more significant in the long term.'
He expected gold to range between $1,710 and $1,999 in the next three to six month, and to test $2,240 beyond the period.
China, expected to overtake India as the world's biggest gold consumer in the next few years, has great potentials, said Jeremy East, the bank's Global Head of Metals Trading.
'I think what we are going to see is onshore market trading volumes increasing, impacting international prices,' said East.
'The size of the market is huge and it's growing daily.'
The bank is a trading member of the Shanghai Gold Exchange, the country's major precious metals bourse, which trades gold, silver and platinum.
East said the bank is looking at entering China's gold leasing market, but declined to give details. – Reuters