Commodity Traders Boost Role As Banking Model Fades

The departure this month of Morgan Stanley’s LNG trading desk to Swiss commodities giant Glencore Xtrata does not signal a death knell for investment banks in the physical market. But it is the latest in a trend that has seen traditional commodity traders evolve into a potent force in short-term trading. With internal credit restrictions reducing the amount of risk capital available for trading, investment banks have either left the market or reduced their involvement to more specialized roles. “Morgan Stanley made no secret that they wanted to sell or somehow monetize their LNG desk, and the exodus says a lot about the end of the banking model into trading,” notes one source who says the banks no longer allow their trading desks to take speculative positions that are not fully hedged or supported by back-to-back sales. As the banks reduce their presence, trading giants Vitol, Trafigura and Gunvor have upped their game and are being joined by the likes of Glencore Xtrata, Noble Group, Axpo and Koch Supply & Trading. Singapore’s Temasek Holdings has also set up a LNG trading arm called Pavilion Energy with $1 billion in capital, which will begin operations in September, while Azerbaijan has established Socar Trading in Switzerland. Download here