Singapore: Asia-focused Standard Chartered Bank Plc is looking to expand its commodities trading business into the physical energy markets, mainly for crude oil and coal, a senior executive said on Friday.
The bank has also increased its portfolio of products which it offers to clients in the past year, to include iron ore, freight, coal, palm oil and rubber, to capitalise on Asia’s growth, said its global head of commodities Trading, Arun Murthy.
Stanchart’s expansion in the region’s energy and commodities sector is in line with moves by banks such as France’s Societe Generale, Australia’s Macquarie and Australia and New Zealand Banking Group Ltd.
“We are looking to move into other physical markets, we will take it step by step, but we can’t say for now when we will roll out. What makes sense for us to start with would be crude and coal,” he told Reuters in an interview.
“For now, we have no intentions of owning warehouses or storage terminals but we are leasing for our physical base metals and precious metals business,” added Murthy, who was promoted to global head of commodities trading based in Singapore, from his previous role as global head of energy trading last month.
The bank’s main focus, as with others in the commodities business, is to provide hedging services to its clients, mainly end users and producers.
Citing examples, Murthy said 70% of its trades in the oil markets were customer-driven while the remaining 30% were the bank’s proprietary volumes for its own risk-management purposes last year.
For 2010, the proportion is expected to be 80% to 20% because global crude benchmarks have been more volatile within a thinner range at $70-$85a barrel, versus a gradually rising curve last year when prices range from $50 to $80, said Murthy.
Stanchart, which currently has 50 staff in Asia and the Middle East dealing with commodities and energy, including 18 traders, is also expanding its manpower. It recently hired the former managing director of Singapore-listed Chemoil, Karan Chabria, as its global head of oil products trading.
The plan to move into physical coal trading is driven by expectations that it will be the largest growth market in the commodities sector due to increasing activity in the Indonesia-India corridor, with production volumes from Indonesia rising to meet rapidly growing demand in India, he said.
“Our strategy is to increase our commodity product offering, while having a good understanding of what our clients in Asia needs,” said Murthy.
“We make it a point to understand everything that our clients need to a T.”
Murthy said one of the biggest tests in promoting business in Asia is that many countries are tightly regulated, such as state-controlled prices, which minimises the need for end users to hedge their purchases.
However, he expects these countries to eventually deregulate, citing India’s recent move to allow market prices for gasoline and may do the same for diesel in future.
“India is letting prices float by removing subsidies and I believe it could be a growing trend. This will lead to more opportunities to provide risk management services,” he said.
India also plans to open its antiquated coal mining industry — breaking the near monopoly of state-owned Coal India, the world’s largest producer of thermal coal, by inviting domestic and foreign firms to invest — like oil and gas reforms did in 1999.