The retreat by the big banks from commodities is creating
opportunities for smaller operators.
At least, so hopes Marex Spectron, which on Tuesday unveiled
the launch of a global customised derivatives division, Marex Solutions, aimed at providing
products that banks have created demand for, but have since abandoned amid
withdrawals from the space.
Many of the big banks, such as Barclays and Deutsche Bank,
have unveiled at least scaledowns in commodity operations, often in a drive to
direct capital at best-returning operations.
And some of the remaining operators are struggling. Goldman
Sachs on Tuesday revealed its worst ever quarter in commodities in the
April-to-June period, for which its fixed income, currencies and commodities
reported a 40% tumble in revenues.
But that is not stopping Marex Spectron from expanding from
more conventional commodity work into tailored derivative products on which
banks once had a stranglehold.
Indeed, banks' participation was crucial in creating the market
for these products which can, for instance, give sugar producers' a lower
outlay for price protection in return for capped gains even if market values
A more simple product is the so-called "accumulator", in which
producers gain a fixed, above-market price for their commodity, but in return
for agreeing to accelerate selling if values head above that level.
Thanks to banks' efforts "there is now a broader understanding
of the products, people are more willing to accept them," said Nilesh Jethwa,
the chief executive of the Marex Solutions unit.
"But just at this moment in time, when we now have demand,
banks are exiting," with more complex products often harder to sell to
shareholders for which the global economic crisis placed a big question mark
"Waiting for another two or three years' time, it might have
been more difficult to sell the products again.
"Two or three years ago, there would have more competition."
In fact, Mr Jethwa said that the market is now in a big of a
"Goldilocks period", lacking the rivalry from the big beasts, but when clients
still "have unmet hedging needs".
'Pressure on margins'
Indeed, the launch of the division comes at a time when in
soft commodities in particular such as cocoa, coffee and sugar, among markets which
Marex focuses on, weak prices have made it all the more important to
investigate ways to boost sales prices.
"Pressure on margins makes it all the important to get the
hedging strategy right," Mr Jethwa told Agrimoney.com.