T.he choppy body of water Commodity Trading Claims Another Victim. Found out on April 23rd ingwas being sued by a Dutch lender ICBCChina’s largest bank. ing Blame ICBC When he opened export documents to Maike, a trader who once handled a quarter of China’s copper imports, ingShortly after this, Maike runs out of cash and loses hope of getting his money back.now ing Seeking $170 million from ICBC for that alleged error.
Controversies like these are becoming painfully common in industries that transport food, fuels and metals around the world. Last year, traders stopped supplying Chinese metal merchants after $500 million worth of copper leaked. AWOLIn February, trading giant Trafigura posted a $600 million loss after a cargo of nickel it bought turned out to be actually worthless stone. Last month, the London Metal Exchange (I) found a bag of stones instead of nickel in one of the warehouses.
The 40-odd banks that finance much of the $5.5 trillion worth of raw materials that travel around the world each year are often succumbed to such scandals. France’s Natixis and Italy’s Unicredit were among those defrauded when the now-deceased trader Gulf Petrochem misdelivered oil in 2020 before fleeing creditors.JP Morgan Chase is the unfortunate owner of 54 tons of fake nickel found by the US. I.
Commodity trading has long been vulnerable to fraud. Unlike industrial products such as cars and smartphones, common raw materials are priced according to public benchmarks. These are traders with a poor footing who can move quickly to distant locations. Extensive use of financial instruments to hedge or speculate against price fluctuations can lead to magnified losses. Commodity trading is full of obscure intermediaries with little reputation to lose, protected by lax countries.
There are a lot of wild swings these days. In April 2020, Singapore-based oil trader Hin Leong was accused of fraud and 23 banks suffered his $3.9 billion loss as lockdowns reduced energy demand. Last year, Maike used expensive copper to raise money to bet on Chinese real estate. Just before that, coronavirus-free policies and debt rationing strangled the sector. Rising fuel and metal prices seem to have made tricks more attractive.
Frequent scandals and strict rules for risky lending in wealthy countries have forced some banks to exit. ABNMore Dutch lender Amro exited commodity trade finance in 2020. BNP Paribas and Rabobank have reduced their portfolios.
But instead of pulling out, most big banks are refocusing on bigger traders. Trafigura, which borrows from about 140 banks, last year increased its line of credit by $7 billion to $73 billion. Meanwhile, smaller businesses in countries where commodity trading makes a living, such as Switzerland, which employs 10,000 people in the industry, can find enough working capital to keep their operations going, industry consultants say. Jean-François Lambert points out. His three major banks in Singapore also remain active lenders.
Commodity trade finance will become increasingly attractive. The industry is growing rapidly and is more capital hungry than ever. Total gross margin doubled from his 2009 when the market boomed to his $115 billion all-time high. Consultancy McKinsey says that volatile commodity prices, rising interest rates and longer shipping times will cause traders to drive $300 billion to $500 billion between 2021 and 2024. I predict that you will start looking for funds.
Commodity trading has become strategic for many governments concerned about raw material supplies. Earlier this year, Germany and Italy announced that they would guarantee loans to Trafigura, reducing creditor risk. Local mid-sized banks are considering joining, industry veterans say. Existing players are also improving their game. In January, Standard Chartered appointed its first commodities trading officer.Mitsubishi bought last year BNPof the American commodity finance sector. Years of volatility bode well for big traders. ■
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https://www.economist.com/finance-and-economics/2023/04/27/why-commodity-trading-scandals-are-multiplying Why commodity trading scandals are on the rise