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.
“ABN Amro was a very active player, supporting both mid-size and major trading houses,” he says. “Through its relatively large network it has been financing commodity supply chains across the world.”
The big question now is whether other major players will follow suit.