Commodity trade finance at the crossroads
Fraud, commodity prices and concerns over defaults have created a perfect storm for commodity trade finance – and the capacity of trading firms and finance funds to support the market remains unclear.
Commodities trade finance revenue pools continue to decline: revenues from institutional clients and corporates with annual sales turnover in excess of $5 million were down from $2.4 billion in the first half of last year to $1.7 billion for the first six months of 2020, according to data from Coalition.
Unsurprisingly, the decline was particularly pronounced in the second quarter of this year, with $700 million of business done compared to $1.2 billion in the same period of 2019. Some estimates for the decline in commodity trade finance revenues this year suggest banks could see their income fall by almost two-thirds.
In the wake of BNP Paribas suspending new commodity trade finance deals, Jean-François Lambert, founding partner of commodity trade finance consultancy Lambert Commodities, describes the withdrawal of ABN Amro as a worrying development.