* Banks withdraw pre-payment terms for Russia steel, grain
* Moves follow similar steps taken for Ukraine
* Shadow banks step into finance gap, charge more interest
* Global corn prices rally but steel prices still depressed
(Updates to name some of the banks tightening payment term in
Russia, para 7)
By Maytaal Angel and Silvia Antonioli
LONDON/LAUSANNE, Switzerland, April 2 Western
banks involved in global commodity trade flows are tightening
payment procedures for steel and grain deals with Russia, having
already taken similar steps for Ukraine due to its political
Russia's moves to annex Ukraine's Crimean peninsula have
marked the biggest East-West crisis since the Cold War and while
the risk of a military conflagration has receded in recent
weeks, banks in commodity trade finance remain cautious.
"Until the geopolitical situation is clear, most banks are
reducing risk in Russia as well as Ukraine. They are concerned
either that the situation deteriorates into unrest, or about
being forced out through sanctions (against Russia)," a senior
steel industry source said.
He said banks now require, for example, that payment for
steel be made only once there is proof that cargoes have been
loaded onto a vessel, as opposed to allowing the transfer of
some funds for material still in Russia and Ukraine.
Swithun Still, director of Russia- and Ukraine-focused
grains trader Solaris Commodities, said payment conditions for
grain deals had also been tightened, with banks cutting down on
"pre-financing" and paying only once there is proof material is
aboard a vessel.
"A lot of the Swiss and Western banks have been withdrawing
their finance until the bill of lading. The shadow banking
sector is having a bit of a field day, because they are able to
charge 8-10 percent (interest), if not more. Before the crisis
the rate was roughly 3-3.5 percent," Still said.
He said BNP Paribas, Societe Generale
and Banque Cantonale de Genève (BCGE) were amongst the banks
tightening payment rules. The banks all declined to comment when
contacted by Reuters.
IMPACT ON STEEL
In 2013/14 Russia is expected to be the world's
seventh-largest grain exporter while Ukraine is second, data
from the International Grains Council showed.
Global corn prices jumped around 20 percent this year
to over $5 a bushel, partly thanks to fears that supply from
Ukraine in particular could be hit, especially if there is a
fall in plantings.
In steel, by contrast, the impact of tighter financing on
prices ST-CRUEU-IDX has been limited, primarily due to the
global market being massively oversupplied, and because it is
largely small to mid-sized traders that have been impacted.
In 2012, Russia was the world's fifth-largest steel
exporter, while Ukraine was the sixth largest, data from the
International Steel Statistics Bureau showed.
Flows of steel and grain from Russian and Ukrainian ports
have not been disrupted, although grain traders are monitoring
the outlook for the coming corn crop in particular, with
plantings due to be completed later this month.
"One thing to watch is the crop being seeded this year.
Fifty percent is seeded from imported seeds. You could see the
Ukrainian grains crop being reduced this year," said Solaris'
Last month, experts warned Ukraine's coming corn crop could
in the worst case drop by a third as banks reassess risk,
cancelling credit lines to some traders - money which would have
been used in part for crop financing.
In steel, two physical traders at small to mid-sized
merchants said they were struggling to get pre-finance loans for
Ukraine deals from BNP Paribas, UBS and
The banks declined to comment when contacted by Reuters.
(Additional reporting by Polina Devitt in Moscow and Sarah
McFarlane in London; Editing by Veronica Brown and Dale Hudson)