Commodity trade suffers as French curb credit - FT.com

Commodity trade suffers as French curb credit

FT.com

By Javier Blas in London

Getty

Trade finance is a huge business, with lending hitting $114bn in the first nine months, down 6 per cent year-on-year, according to Dealogic.

The European banking crisis is spilling over into commodities trading with French banks, the main financiers of trading houses, reining in their lending.

BNP Paribas and a handful of other European banks, including Société Générale and Crédit Agricole, provide most of the credit lines that underpin the business of the publicity shy Swiss-based traders that dominate commodities markets.

BNP’s Geneva branch alone accounts for up to a quarter of the sector’s credit, according to industry estimates. The bank said commodity trade finance activities “will be part” of its “global deleveraging effort”, but it “had no intention to exit the business”.

Industry executives and bankers said the top traders, including Glencore, Vitol and Cargill, were unlikely to be affected by the credit crunch but small and medium-sized trading houses were already suffering.

Harris Antoniou, head of energy, commodities and transportation at ABN Amro in Amsterdam, said: “There is nervousness in the market. Mid-sized companies in particular feel there may be a need to diversify their funding sources.”

The drive by French banks to reduce the size of their balance sheets is exacerbating the adverse impact on commodities trade finance of the new Basel III capital rules. The new regulation, which phases in over the next seven years, makes the issuance of letters of credit far more onerous than in the past. While banks needed to hold capital equal to just 20 per cent of the value of letters of credit under the old Basel II rules, the new agreement raises the bar to 100 per cent, greatly increasing the cost of lending.

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Commodity trade suffers as French curb credit - FT.com

Bloomberg

Gold Traders Most Bullish Since July After Plunge: Commodities

October 14, 2011, 4:59 PM EDT

By Nicholas Larkin

(For more commodities columns, click CMMKT)

Oct. 14 (Bloomberg) -- Gold's biggest slump in three years means traders and analysts are now the most bullish in three months, speculating that Europe's debt crisis, slowing growth and a bear market in equities will drive demand for bullion.

Twenty-two of 25 people surveyed by Bloomberg expect the metal to rise next week, the highest proportion since mid-July. Prices rebounded 9.2 percent since reaching a two-month low at the end of September and investors are adding to their holdings in gold-backed exchange-traded products for the first time in a month, according to data compiled by Bloomberg. Traders also expect gains in copper, sugar, corn and soybeans, surveys show.

Gold slumped as much as 20 percent since reaching a record $1,923.70 an ounce on Sept. 6 as investors sold the metal to cover losses in other markets. As much as $4.2 trillion was erased from the value of global equities in the past month on mounting concern that economies will tip back into recession and European lawmakers will fail to prevent sovereign defaults. The last time traders and analysts were this bullish, bullion surged 21 percent to an all-time high within eight weeks.

"There's macro-economic, systemic and monetary risk in the world and there's no sign of that going away any time soon," said Mark O'Byrne, the Dublin-based executive director of GoldCore Ltd., a brokerage selling everything online from quarter-ounce British Sovereigns to one-kilogram (2.2-pound) bars. "All the factors that drove gold to a record are still there."

Bank of America

Gold has risen 18 percent this year to $1,683 by 1:30 p.m. in New York, heading for an 11th consecutive annual advance. It's the fourth-best performer behind gasoil, Brent crude and heating oil in the Standard & Poor's GSCI Index of 24 commodities, which rose 1 percent. The MSCI All-Country World Index of equities dropped 9.1 percent and Treasuries returned 7.8 percent, according to a Bank of America Corp. index.

Bullion dropped 11 percent in September, the most since October 2008. That spurred speculators in U.S. futures to cut their net-long position, or bets on higher prices, to the lowest since February by Oct. 4, according to data from the Commodity Futures Trading Commission. They held a net 127,249 futures and options, 13 percent below the average over the past five years.

Investors reduced their holdings in gold-backed ETPs by almost 17 metric tons last month, a pile now valued at about $900 million, data compiled by Bloomberg show. They added 8.7 tons so far this week, taking combined assets to almost 2,219 tons, more than the holdings of all but our central banks.

Accelerating Purchases

Those central banks are also accelerating their purchases. Thailand, Bolivia and Tajikistan bought a combined 18.2 tons in August, International Monetary Fund data show. The slump in prices means more buying for reserves is "very likely," according to Edel Tully, a London-based analyst at UBS AG. Central banks are adding to their holdings for a third year, the longest expansion in almost four decades.

"There's strong physical demand globally," said O'Byrne of GoldCore, which also offers 400-ounce gold bars as part of a service to high-net-worth investors.

The traders and analysts surveyed by Bloomberg are also bullish on copper, which entered a bear market last month after slumping more than 20 percent from a peak in July. Seven of nine people expect prices to rise next week. The metal for delivery in three months, the London Metal Exchange's benchmark contract, dropped 21 percent to $7,545 a ton this year. Copper reached a 14-month low of $6,635 on Oct. 3 as investors speculated that slowing growth will curb demand for raw materials.

China, the world's biggest copper consumer, imported the most metal in 16 months in September, customs data show. Diego Hernandez, chief executive officer of Codelco, the largest copper producer, said in an interview in London on Oct. 4 that the Asian nation should take advantage of the slump to restock.

Warehouse Stockpiles

While Barclays Capital cut its forecast for this year's shortfall in copper supply five times since April, the bank is still predicting a 468,000-ton deficit. That's enough metal to supply Japan for five months. Stockpiles in warehouses monitored by exchanges in London, Shanghai and New York fell about 8 percent since the end of March, a sign production is still failing to keep up with demand.

"Should debt concerns in the euro zone recede, we are looking to more fundamentally based trading through next year where the likes of copper should benefit," said Andrey Kryuchenkov, an analyst at VTB Capital in London. "We just need to shake off macro fears and concentrate on market specifics."

Seven of 12 people surveyed anticipate gains in raw-sugar prices next week and eight said white, or refined, sugar would also advance. Raw sugar traded on ICE Futures U.S. in New York slipped 13 percent this year to 27.93 cents a pound. White sugar traded on NYSE Liffe in London fell 8.5 percent to $711.30 a ton.

Top Producer

Raw sugar climbed 11 percent this week and white sugar 8.8 percent on speculation that flooding in Thailand, the world's second-largest shipper, may delay harvests at a time when mills in top producer Brazil are ending their season early.

The Thai sugar harvest may be delayed by two weeks, according to Newedge Group SA. Mills in Brazil's Sao Paulo state, which accounts for more than 50 percent of the nation's cane production, started shutting for the season in late September, the earliest in 12 years, because of a smaller crop, according to Celso Junqueira Franco, president of the Union of Biofuel Producers.

'Bottoming Out'

Fourteen of 28 people surveyed expect corn to rise next week and 19 of 27 anticipate the same thing for soybeans. Prices for both crops plunged by the most in at least three years last month on prospects for improving harvests. Both commodities rose the most in a year or more on Oct. 11 on the Chicago Board of Trade as traders speculated that declines in September would boost purchases by makers of food, animal feed and biofuels.

"Commodity markets are in the process of bottoming out and I think it may take a little time, maybe a few months, to solidify that bottom," said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $360 billion of assets. "You will see commodities going up now. The intensity of commodity selling may be ending and we may be heading in another direction."

 

Standard Life Buys Canadian Stocks, Saying Recession Is Unlikely- Correction

> Bank of Montreal comment on the story:

> Interesting view from a cautious investor: the earnings yield has RISEN to the HIGHEST level since 2009 while the yield on 10 year Canada bonds has declined to record lows. That made equities too enticing to pass up.If you look at base metals stocks they are down 50% from the peak and their balance sheets are pristine. In fact, their debt levels are less than 1/3 what they were at the end of 2008.
>
> Some favorites among the miners are: ANR, TCK/B and WLT ( coal), Cliff ( iron ore), FCX, CUM and IVN ( copper), Petra Diamonds ( diamonds), Uranium One ( uranium), Rio and BHP among the diversifieds.
>
> See news below,
>
>
> Standard Life Buys Canadian Stocks, Saying Recession Is Unlikely
> 2011-10-14 04:01:00.8 GMT
>
>
> By Matt Walcoff
> Oct. 14 (Bloomberg) -- Standard Life Plc increased investments in Canadian equities for the first time since 2009, betting that prices have plunged to levels justified only if the U.S. economy contracts, which the firm says is unlikely.
> Standard Life Investments Inc., the insurer's Canadian asset-management unit, has boosted its allocation to equities in the nation, buying shares of larger base-metals, energy and industrial companies in the past month, said Charles H. Jenkins.
> The unit, which oversees about C$5.7 billion ($5.6 billion), has sought stocks most-tied to economic growth.
> "This is a mid-cycle slowdown, subpar growth, but we're going to muddle through it," said Jenkins, a senior vice president for Canadian equities at the unit. He spoke during a telephone interview yesterday. Standard Life, based in Edinburgh, is Scotland's largest insurer.
> Canadian stocks entered a bear market this month, with the Standard & Poor's/TSX Composite Index falling more than 20 percent from its peak in April, amid concern that the U.S.
> economy is stalling. The index has rebounded 6.6 percent since then after European leaders said they are working toward a solution to the region's sovereign debt crisis. Oil and metals prices have also rallied, driving up their producers in Canada.
> The index's price relative to earnings forecasts for the next 12 months dropped to the lowest level since March 2009 on Oct. 4, while the yield on Canadian 10-year government bonds declined to a record low last month. That made equities too enticing to pass up, Jenkins said.
> "If you look at some of the metals stocks, they're down 50 percent," said Jenkins, who declined to name the stocks he bought. "Their balance sheets are pristine."
> Base-metals and coal companies in the S&P/TSX have less than one-third the debt relative to equity they had at the end of 2008, according to data compiled by Bloomberg. The stocks have tumbled 40 percent since Feb. 8.
>
> For Related News and Information:
> Developed markets view: DMMV <GO>
> World stock indexes: WEI <GO>
> Most-active Canadian stocks: MOST CN <GO> S&P/TSX map: SPTSX <Index> IMAP <GO> Top stories on stocks: TOP STK <GO> Stories on Canadian stocks: NI CNS <GO> Top stories on Canada: TOP CA <GO>
>
> --Editors: Nick Baker, Stephen Kleege
>
> To contact the reporter on this story:
> Matt Walcoff at +1-416-203-5729 or
> Mwalcoff1@bloomberg.net