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Banks' exposure to commodity trading houses are likely to be limited

The Edge Singapore
The Edge Singapore 10/11/2021 07:24 PM GMT+08  • 2 min read
Banks' exposure to commodity trading houses are likely to be limited
Reports indicate that commodity trading houses are getting margin calls. Their banks are European with a few exceptions
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Commodity trading houses are a cyclical business as Singapore investors experienced with the likes of Noble Group. According to Bloomberg and other wire services, Glencore, Gunvor, Trafigura and Vitol are being told by brokers, bankers and exchanges to top up their margin accounts because of rising gas prices.

Normally, commodity traders which build long positions in a particular commodity - say liquefied natural gas (LNG) - normally hedge these positions with corresponding short positions which are often in derivatives in the futures markets. The price of gas has spiked in Europe, and the wires are reporting that these large commodity houses have been told to deposit additional funds for these short positions.

On Sept 30, Gunvor announced it had issued five-year US$300 million of senior notes priced at 6.25%. The bond prospectus showed that the company pre-sold or hedged inventories totalled US$5.3 billion in June, up from US$2.8 billion in 2018. Natural gas and LNG trading accounted for nearly half of its traded volumes for the period at about 45%. The prospectus also showed that at least US$2.5 billion of the company's credit lines were allocated for margin call funding, out of its total credit facilities of US$18 billion.

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