LONDON: As US and European banks drop out of commodity trading, Russian, Chinese and Gulf state firms are filling the gap in an attempt to exert greater control over the pricing of the raw materials on which their economies so heavily depend.
Last week, the Kremlin oil champion Rosneft bought the oil trading unit of Morgan Stanley, as banks reduce exposure to trading.
The state companies are joining trading houses like Glencore and Vitol and large oil firms like BP and Shell to take advantage of the retreat from trading by banks because of the greater regulation of banking activities that followed the 2008 financial crisis.
It won’t be long before such deals are repeated, say executives from major trading houses as they see a new class of rivals challenging their supremacy in connecting buyers and sellers of commodities, mainly oil.
“Banks by and large are moving out of the trading of physical commodities. On the other hand you have new entrants, large state enterprises, Sinopec, Gazprom, Petrobras. These are all entities which are increasing their merchant and trading capabilities,” David Messer, chief executive of US merchant Freepoint Commodities, said last month.
Morgan Stanley is not alone in exiting commodities trading. Out of its four biggest rivals, Deutsche Bank has already quit, Barclays has reduced its trading operation by a fifth, JP Morgan is selling out and only long-time leader Goldman Sachs is sticking to its guns.
JPM has Grupo BTG Pactual, a private bank from Brazil, amid contenders. Russia’s Gazprom has built a substantial gas trading division in London and Singapore and Saudi Aramco has also began building a trading operation.