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 soar.
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 over derivatives.
"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".
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.
By Mike Verdin