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.

According to people familiar with Gunvor, its largest lenders are Rabobank with US$2.39 billion, BPCE Group with US$2 billion, ING with $US$1.9 billion, ABN AMRO with US$1.8 billion, DBS with US$1.5 billion and Credit Agricole with US$1.4 billion. These exposures may not necessarily be problematic as Gunvor could well have sufficient liquidity for its hedging strategies.

DBS usually declines to answer questions on specific customers. However in Oct 2020, a DBS press release on the launch of its real-time online tracking of cross-border collections platform had a quote from Gunvor’s Asia-Pacific treasury manager who said: “Having the ability to access real-time status updates on all inward cross-border collections across our businesses in multiple geographies radically reduces the amount of time and manpower hours to reconcile incoming payments with invoices. DBS has taken a transformative approach to digitalise its clients’ cash management experience and support Treasury division’s goal towards improved working capital management.”

Photo credit: Bloomberg