August 17, 2011 / 8:25 AM / 8 years ago

Asia commodities markets insulated from crisis, but cautious

SINGAPORE (Reuters) - Asia’s commodities business is still largely insulated from looming fears of yet another global financial crisis, although new projects might face difficulties in getting financing.

All of the 10 banks and oil trading houses contacted said it is business as usual in the market — from moving ahead with big-ticket infrastructure projects to maintaining the same credit requirements for derivatives trading and trade-finance.

Hiring has also been going ahead, with some banks adding staff in Asia even as they cut in other regions.

“There’s been little change in recent weeks, other than the usual seasonal factors,” said Dominic Mound, general manager at Singapore-based international recruitment firm Commodity Appointments.

“Taking the long view I would say that business is reasonable ... all the turmoil has done is heighten the awareness of risk and the need to have competent people to manage that risk.”

The oil derivatives market, normally a sound gauge of sentiment, has yet to see any significant tightening of credit in direct bilateral trades or by clearing members of exchanges, while trade volumes remain at two-year high levels.

Banks in the Asian trade-financing sector are still aggressively chasing business and dispensing loans, as they had been since the 2008 financial crisis ended.

“There is the usual chatter about the global situation, but no one has really done anything drastic, at least overtly anyway. It’s just business-as-usual,” a Singapore-based oil derivatives trader said.

“In the oil swaps market, for example, there has been no slowdown in activity, and no change to credit requirements, either between direct counterparties or through clearing houses.”

MARGINAL PLAYERS SQUEEZED OUT

There had been some personnel cuts by at least three international banks since the start of the year, although none of the three are traditionally strong in the commodities business, either in Asia or globally.

Japan’s Nomura Bank shut its commodities desk earlier this year, while Credit Suisse has trimmed the size of its Asian team to a skeleton crew and Bank of America (BoFA) had also axed some Asian personnel as part of a larger global culling.

Credit Suisse, the U.K.’s Barclays Bank, UBS, and HSBC, all Europe-based banks, have cut several thousand jobs each globally, but their Asian offices have been spared the worst of the culling, and some are still hiring in Asia.

HSBC cut 30,000 jobs globally but is hiring 15,000 in Asia and Brazil, and UBS announced 5,000 redundancies across the world but is hiring 1,000 in China, Hong Kong and Taiwan.

What job cuts took place in Asian commodities were attributed more to an overcrowded marketplace.

“Those guys that shut or trimmed their businesses were never big players in the commodities market here. After the crisis, everyone was jumping onto the Asia bandwagon, believing that they could make money simply just by being here,” a Western investment banker said.

“These guys may be big names on the banking stage, but they never had a track record in the commodities markets, particularly in Asia. And they didn’t have any particular niche that they could build their businesses from.”

BANKS, MANUFACTURERS, TRADERS STILL EXPANDING

Companies, including trading houses, banks and support players, are proceeding with expansion plans already in place, from increasing headcount to expanding both infrastructure and trade volumes.

However, new plans, particularly for infrastructure expansion, might be met with more caution.

“If a project already has commitments from the banks, it is unlikely that they will renege, but in terms of new deals in the pipeline the banks are likely to be cautious and there will be a holding back of underwriting capacity,” said Bruce Macfarlane, Dutch bank ING’s head of natural resources project advisory for Asia.

“It’s still early days so it’s not clear whether this is going to be as bad as the last time.”

The traditional commodities players among the banks, such as Goldman Sachs and Morgan Stanley, as well as relative newcomers with specific Asia-driven strategies, such as Citigroup and Standard Chartered, remain unaffected or have even thrived.

Oil trading houses have also largely been unscathed, with trade volumes and market liquidity at healthy levels.

Citigroup started expanding its trading team last year, hiring several A-list traders, and is still doing so as it focuses on Asia.

“We have been investing heavily in talent to build up our commodities and energy business in Asia to support our clients, and have seen record client flows across the platform in recent weeks,” said Citigroup spokesman James Griffiths.

Hong Kong-listed physical oil trader Brightoil, which expanded its trading capability less than a year ago by hiring a team of more than 20 fuel oil trading personnel from BP in Singapore, continues its aggressive growth.

It has spent millions buying oil tankers, expanding its trading reach into Europe and the U.S. as well as into other oil products beyond its traditional fuel oil stronghold.

Construction kicks off this month on Singapore’s Jurong Island of a $2.4 billion (1.5 billion pounds) aromatics complex that had been delayed by the financial crisis. The facility is expected to start operations in 2014.

“We are in this business for the long haul and we are not unduly concerned about short-term gyrations in stock markets and economies,” said Mehdi Adib, the chief executive officer of Jurong Aromatics Corporation, which is building the plant.

“Over the longer term, we have seen an increase in the demand for petrochemicals.”

In the oil derivatives market, average monthly liquidity was at the highest for at least two years in July and continuing into August, signalling that confidence remains strong, traders said.

An average of more than 110 million barrels of fuel oil and distillate swap contracts were traded during this period, versus the 2010 average of 85 million barrels, Reuters data show.

Volumes for August were around 49 million barrels up till last Friday, the halfway mark of the month.

Credit requirements for direct trades between counterparties on a bilateral basis remain the same, with no tightening of limits, while clearing members of the three exchanges operating in the Singapore market have not asked for higher margins, traders said.

“Despite the buzz about the gloomy state of the world, and the spectre of downgrade for some French banks, no one has formally put in place tighter credit requirements,” an official with a clearing house said.

“It’s still very much business as usual.”

Additional reporting by Luke Pachymuthu and Francis Kan; Editing by Michael Urquhart, Sambit Mohanty

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