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This month the Financial Times hosted its third Asia commodities summit, bringing together some of the region’s most powerful traders and executives in Singapore to discuss the challenges and opportunities facing the industry.

Based on conversations with delegates and panel discussions, here are the main themes that emerged.

Oil prices are going nowhere fast

The oil market is slowly rebalancing supply, but prices will remain subdued as a huge overhang of inventory is digested.

Several speakers said crude oil would trade in a narrow range and struggle to breach $60 a barrel in part due to stocks but also the resilience of US shale drillers.

“We think that prices will be in a corridor of $40-$60, not more,” said Arzu Azimov, chief executive of Socar Trading, citing the ability of US drillers to turn production on and off in response to prices.

That view was echoed by Andy Milnes, head of BP’s Integrated Supply and Trading business in the region, who said prices were not going back to $100 soon.

“You worry that if we get back to $55 to $60 . . . then this flood of shale oil could come back into the market. It is a completely new dynamic,” he said.

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Everyone wants a teapot

On demand, Mr Milnes revealed how BP was courting the hottest new customers in China — its independent refiners. Also known as “teapots”, they account for about a third of the country’s refining capacity and recently received Beijing’s permission to source foreign crude directly.

“You won’t hear us talk about them as teapots,” quipped Mr Milnes, who said BP’s trading arm had rebuilt its China team over the past 18 months, dropping the criteria to speak English in its recruitment process so it could hire more locals.

“My experience of trying to do business in China and emerging markets more generally is that western companies try to do it with western people and that fails singularly. Parachuting someone in from Texas talking to a Chinese refiner isn’t going to work.”

LNG and meeting future demand

Across energy markets, supply rather than demand was pinpointed as the reason for subdued prices. Steve Hill, who runs gas trading at Royal Dutch Shell, gave some bullish forecasts for LNG but also touched on a key challenge facing the industry.

“We expect global LNG demand to double by 2030, assuming there is sufficient additional investment in supply.”

Analysts struggle to see how new LNG projects, which cost tens of billions of dollars to develop, can be delivered unless prices rise sharply from current depressed levels. Mr Hill said he was confident projects that lined up the best customers would get financing.

But with more cargoes available in the spot market, others cautioned there would have to be changes. The debate focused on the viability of long-term supply contracts that have helped finance projects but are viewed as onerous because of their link to oil prices.

“We have to recognise that three-fifths of the world’s population has jurisprudence which expects a contract to reflect some sort of economic balance and to be changed in the light of circumstance,” said Paul Aston, partner at Holman Fenwick and Willan.

Financing commodity trading in Asia

Enthusiasm towards commodities among Asia’s financiers has cooled. Slower growth in China, as well as increasing debt levels and defaults among natural resource companies, have increased the sense of risk, said bankers.

Paul Gardner, global head of structured commodity finance at Westpac, admitted that banks were partly to blame for the lower pricing attached to commodities financing. “Banks are their own worst enemy. We’ve chased the pricing down,” he said, but sentiment had turned. Banks in the region were still in the commodities business but “there needs to be a move in pricing upwards, simply to cover the costs and risks we’re facing right now”, he said.

Bankers wanted to see more revenue from a client, especially through more cross selling, said Lim Chen Chen, head of structured trade and commodity finance at UOB.

In spite of the rise in non-bank financing in commodities, traders stressed the need for a deeper relationship. Chin Hwee Tan, Asia Pacific chief executive of trading house Trafigura, said: “We need the banks as partners. Our interests are aligned.”

The changing landscape in agricultural trading

From large to small traders, agricultural commodities players are preparing for increased competition. Overseas acquisitions by Cofco and aggressive moves by Japanese trading houses were changing the landscape, said Olam chief Sunny Verghese.

In response, traders predicted more dealmaking. “We’ll see more consolidation,” said Alan Willits, chairman of Cargill’s Asia-Pacific operations, adding that the company was an active participant in merger activity.

Jaime O’Donahue, chief executive of Louis Dreyfus Company’s Asian business, said his company was taking a more cautious view on deals but keeping a close watching brief on Cofco.

Greg Harvey, boss of Singapore-based flour millers Interflour, had a different view. “The nightmare for a guy like me is waking up one fine morning and finding that I’ve got two or three trading houses” as counterparties.

Base, bulks and Chinese policymakers

The fate of the bulk and base commodity markets such as zinc, coal, iron ore and steel was seen by delegates as being increasingly influenced by policy decisions in China.

Since July the government has started to talk a lot more about environmental policy in the mining industry. This could be a clever ploy to tackle overcapacity and address environment concerns, noted Graeme Train, an economist at Trafigura.

“It’s a useful tool for them as it’s obviously politically difficult to announce a lot of job cuts,” he said.

However, Macquarie analyst Ian Roper reckoned “supply-side reforms” and government pledges to curb overcapacity were little more than hot air. Demand from credit-fuelled stimulus has been the reason iron ore and Chinese steel prices had rallied rather than closures.

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