LAUSANNE, Switzerland, April 2 (Reuters) - Global commodities trading is undergoing profound changes as banks pull out from the sector while trading houses adapt to new regulations and expand into physical assets.
Top executives and co-owners of some of the world’s largest trading houses discuss new trends at the FT Commodities Summit in Lausanne, Switzerland this week.
The following are some of their comments made on Wednesday at the event. For selected comments from Tuesday, click on .
On the rise in interest rates:
“As long as interest rates remain within that (reasonably low) range, you will be factoring it in the cost of doing business and eventually it gets through the chain to the end-user”.
On interest rates:
“If you see interest rates growing, that means that the underlying economy is effectively recovering. That means more volatility, more flows ... that means more capacity to borrow from different markets”.
On interest rates:
“Just a natural move higher in Fed funds from 0.25 (percent) even up to 2 percent won’t necessarily hit the business or make us uncompetitive. Some of that will be factored in the cost of transaction, inventories etc.”
On the next big mergers in trading:
“It is difficult to merge cultures. I don’t see this happening as quickly as you might think.”
On U.S. oil refining:
“We would love to invest in U.S. refining ... The ability to enter there is just way too costly.”
On banks exiting commodity trading:
“I don’t think it’s a great thing because I think they have tremendously activated interest in the commodity space especially through the institutional investors market, through the structured products market and that just creates liquidity all along the curves. And to sustain growth with the least amount of risk, we want liquidity in these markets, so we are not particularly happy about it.”
On Vitol buying Shell assets in Australia:
“I don’t feel there is a price bubble at the moment in Asian and European energy assets just yet.”
On whether Vitol is looking into a listing:
“I think we do periodically revisit the issue because it does deserve attention but I think we have convinced ourselves that the model we have had for a long time seems to work very well for us. We are not constrained capital-wise at the moment and I don’t really foresee any of our plans being interrupted by a need for more equity capital. And we have a number of co-investors that are happy to look at other large investments with us so I don’t think we need to go that route for a while.”
VINOD AACHI, GLOBAL HEAD OF STRUCTURED TRADE FINANCE AT STANDARD CHARTERED BANK
On challenges of Basel III capital standards:
“Glencore and Vitol will manage the costs (of Basel III) but smaller players will be left to the mercy of the market.”
GRAHAM DONNELL, DIRECTOR & GROUP GENERAL COUNSEL AT STEEL TRADING FIRM STEMCOR
On the company’s restructuring:
“The standard response to a stress scenario, a default, is to go into what is called a standstill. But trading companies can’t stand still. They need to move. They need to keep the bicycle wheels turning. So that was a huge challenge for us. We defaulted on one facility, cross defaulted incredibly quickly into all our other facilities and we had to keep the diesel in the engine and it was the relationships with our trade finance lenders: HSBC, BNP, Natixis that pulled us through that because what you need is a coordinated group that you can talk to and come to a consensual solution.”
“When I asked my CFO before I came to this panel what was the lesson (we learnt), he said: fewer banks, stronger relationships. We did the reverse.”
MARCEL VAN POECKE, MANAGING DIRECTOR AT CARLYLE INTERNATIONAL ENERGY PARTNERS
“Why is there a fit between private equity and commodities traders? Capital is very important for traders, especially who are not listed, diversification and access to top-tier operators is also important”.
“I’ve never seen the market with so many good assets for sale,” said Van Poecke, adding that those assets are being offered as major oil companies are refocusing and independent producers are expanding.
“Investors say ‘We don’t need you to be an integrated company’ ... They say: ‘We can buy BP for upstream and Valero for downstream’.”
“My guess is that private equity is becoming a bigger business in oil and gas. You will see more sovereign wealth funds and other capital coming in and looking for opportunities.” (Reporting by Silvia Antonioli and Dmitry Zhdannikov; Compiled by Dale Hudson)