* Era of consolidation ahead for commodities merchants
* ‘Plain common sense,’ key to navigate harder times
* China demand to be consumer driven, not by industry
By Melanie Burton
LONDON, Oct 15 (Reuters) - Commodities traders need to be large and diverse, but still nimble, to flourish in the rockier times ahead, Richard Elman, chairman of Hong Kong-based Noble Group Ltd, said on Monday.
As prices for some commodities lose steam, Noble has chosen a cross-commodity approach, rather than focusing on one area, Elman said at a key note speech in London marking the start of the industry wide London Metal Exchange (LME) week.
“We think that’s key to surviving in the new, more challenging world,” Elman said.
“We have also tried to be big enough to remain well-capitalised to survive the capital drought, yet not too big that we can’t change, adapt and be managed,” he added.
Noble, headquarted in Hong Kong, but listed in Singapore, is focusing on developing its metals portfolio after breakneck growth in energy, which now delivers two thirds of its revenues.
Energy accounted for 64 percent of 2011 revenues, followed by agriculture, at just under a quarter.
This summer it hired two metals traders in London and New York to expand its business outside of Asia.
Since the heyday of huge price gains before the 2008 debt crisis, commodity markets have seen a “seismic” shift, Elman said. They are now facing huge constraints on capital, and on working capital in the West, in particular, Elman said.
China, with its government-sponsored spending plans, has emerged as the dominant market force, securing for itself a larger slice of the commodity pie, said Elman. It now accounts for around 40 percent of copper demand, up from 20 percent in 2003.
China’s evolution into a consumer-driven economy, instead of an economy driven by industrialisation will change the nature of demand and trigger an era of consolidation among merchants.
New trade routes will emerge and new cities will spring up in markets such as India and China that will become the main drivers of business.
“The key to seizing this opportunity will be a combination of rescaling businesses, focusing on the commodities newly invigorated by an increasing consumer-driven economy, and one of our preferred management tools at Noble: PCS,” he said.
“What does PCS stand for? Plain Common Sense.”
Reporting by Melanie Burton; Editing by Louise Heavens