Moving the headquarters of its metals
business to Asia in 2016 has propelled BNP Paribas’s expansion in the market,
according to Mikko Rusi, the bank’s Singapore-based global head of metals. The
move was made in response to the growth in consumption of physical base metals
in China, as well as increased onshore futures trading activity in recent
years. As a result, “metals price formation is increasingly happening in Asian
time”, Rusi says.
Through BNP Paribas (China), the bank is also able to work
with clients in mainland China, offering transaction settlements in renminbi.
Mikki Rusi, Global Head of Metals
BNP Paribas was able to arrange flexible financing solutions for metals traders in the sector last year, leveraging backstop liquidity from the LME to alleviate counterparty credit risk, as well as price and liquidity risk.
“The structure was not new, but it needed fine customisation to work around the limited LME liquidity in cobalt versus the clients’ needs. Also, the constraints imposed by the features of physical inventories made the deal more complex,” Rusi explains. “As such, arranging the hedging element on the LME was the most difficult part, along with being in the position where we knew we could warrant the metal if necessary.”
Rusi says BNP Paribas also conducted a lot of long-dated iron ore hedging business for consumer clients in 2016, taking advantage of the backward dated curve in the market. “Similarly, in coking coal, another very illiquid market, we started offering hedging services to clients such as steel mills that wanted to hedge iron ore and coking coal,” he adds. In addition to supporting clients in more illiquid markets, the bank continued to participate in more actively traded parts of the base metals markets by, for example, initiating a major copper and nickel hedging programme with a large mining company.
By shifting its centre of gravity to Asia in 2016, coupled with ongoing activity in both new and illiquid markets, BNP Paribas has strengthened and deepened its base metals offering to satisfy growing physical and financial needs globally.
This article appeared in the May 2017 edition of Risk magazine.